Board Topic: Shopping Center profits
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Shopping Center profits

Posted by: Guest_John Dec 18 2003, 04:48 PM
I have a question about investing in real estate. A good friend of mine is putting a group together to purchase a shopping center. The property is a strip shopping center located in one corner of a very busy intersection. Total number of stores is 9 and the site is shaped like an L with a restaurant in the corner.

Before I invest, I would like to compare the numbers with other shopping centers to find out if the property makes the right amount of profit. Do you know how I can find these numbers.

Thanks for your help

John

Posted by: loanuniverse Dec 18 2003, 08:41 PM
John:

The short answer is that there is a resource available from an organization called: ”International Council of Shopping Centers”. This organization releases an annual report that gives information on revenues, expenses and profits for shopping centers around the United States. The shopping centers are broken down by regions, by type and size. I have seen a copy or to lying around in credit departments. However, those books are not really used much when considering a real estate loan for a shopping center. I also suspect that they will only be of marginal use to you because the data is regional and is not specific to your city or neighborhood.

The long answer is that whenever a shopping center is analyzed for a loan, the latest information available is used. This would be the case for your situation where you are looking at this from the point of view of an investor. As a credit analyst in a commercial bank, there are several tools available at my disposal.

First, I can use the knowledge of the commercial real estate lenders working for the bank. In order to be successful at their job, they must be up to date on market conditions, and this makes them a good resource.

I also get the benefit of a commercial real estate appraisal, which will have several comparable properties and will include an analysis as part of their estimate of value using the “capitalization approach”

In conclusion, ask if there is an appraisal available even if it is a couple of years old, that will help. Ask for an updated rent roll and operating expenses and find the net operating income to see the type of return you can expect. There is more information about how to do this in the real estate financing portion of the website, and in many responses that I have given to people.

Without an updated appraisal, the estimate of value is not very reliable. In addition, your objective of comparing the profitability of the property against true comparable properties suffers.

Hope this helps.
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