- January 27, 2017
- Donato Mucciacciaro
- 0 Comments
“How much is my shopping center worth?” Valuations are a large part of being a commercial real estate broker, and the answer to valuing a CRE asset often depends on who you ask. Tenant credit worthiness, length of remaining terms, lease rates, landlord and tenant expenses / obligations, property location, interest rates, and demographic trends are just a few factors that can have a large impact of property values. This makes the answer to the above question not so cut and dry.
While there are many factors that affect value, there is one true driver. This factor dictates returns. Every commercial real estate investor has a different set of investment parameters they follow, but they all have one thing in common: They expect to receive a certain amount of cash flow as an annual return on their shopping center investment. It’s this annual return that not only is the ultimate deciding factor for property purchase, it also gets the most consideration when it comes to determining shopping center value.
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Determining Shopping Center Value: Capitalization Rates
In commercial real estate, we refer a properties’ annual return as the capitalization rate, or “cap rate”. The cap rate is determined by dividing the Net Operating Income (NOI) from the property asset value.
If a shopping center investment property is generating $100,000 of NOI per year (after expenses), and it was listed for sale at $1,000,000, the cap rate would be 10 ($1,000,000 / $100,000). So, in this example the owner of the shopping center would expect to get 10% of their $1,000,000 annually.
Current Shopping Center Investment Market
Historically low interest rates and traditional investment yields, coupled with an unusual influx of foreign investment capital, have pushed shopping center cap rates lower than they have ever been. This makes the current market a prime time to sell.
As for the most conservative, traditional investments, a quick glance shows money market rates as of January 2017 to be 0.25% to 1.10% annually, 10 year US Treasury Notes and Bonds are yielding 2.33% (YTM) and CD Rates are 1% to 2% annually.
If you are looking for more aggressive investments that have the potential for triple digit returns, in the form of individual stocks and options, be warned that often times the risk (comparable to casino gambling) does not meet the reward.
High Return, Low Risk
Due to an overall trend of rising property values and a limited supply, shopping center real estate investments can offer some of the highest returns for the lowest amount of risk involved. Depending on all the factors mentioned above, multi-tenant shopping centers and investment properties in the Greater Baton Rouge area are currently trading between cap rates of 8% to 12%.
Our retail team has brokered millions of dollars in leasing and sales transactions and has decades of combined experience. We specialize in tenant and landlord representation in commercial retail leasing as well as buyer and seller representation of real estate investment assets.
We offer free shopping center valuations and would like to hear from you if you need any assistance in leasing, selling or are just curious as to what your property may be worth. You can reach us at 225.288.3699 or by email at email@example.com.
About Donato Mucciacciaro – Donato has assisted with site selection and expansion for several national and local brands including restaurants, convenience stores, retailers, medical and general office users, billboard companies, and industrial warehouse tenants. His current specializations are retail leasing, tenant and landlord representation, and marketing. His long term goal is to focus on the brokerage of net leased investment properties nationwide. To contact Donato, you can call him at 225.288.3699 or you can email him at firstname.lastname@example.org. You can also follow him on Twitter at @svngll or on Facebook.