ATLANTA, GA – August 22, 2017 – Emery Shane, Senior Partner of Shane Investment Property Group, was recently invited to guest lecture at the 2017 Atlanta Commercial Board of Realtors (ACBR) “Retail Expert Series” conference. Founded in 1910, the ACBR is the largest group of commercial specialists on the east coast. Through the “Expert Series,” professional experts from within their respective fields share their knowledge delivering quality commercial real estate education.
Sharing Five Keys on “How to Evaluate a Retail Property for Purchase,” Mr. Shane offered unique insight from his twenty-five plus years of experience and over $1B sold in the commercial field, a feat few brokers have achieved.
“People often ask you to find a property for them, ‘that you would personally buy’, but this is a big problem,” says Shane. “It assumes you have the same experience, expertise, leasing and management capability, and values, as the buyer.” Shane’s “First Key” is knowing that each property can only be evaluated properly by understanding the buyer’s goals, needs, risk tolerances, experience and financial condition. Shane advised vetting a potential investor before showing even one property because “a property that is perfect for an experienced developer, may be a nightmare for a novice, or even an experienced, but now passive investor.”
Shane revealed four other keys: external factors, internal factors, financial factors, and deal killers. Surprising the audience, Emery suggested bypassing the financial section of the offering memorandum, and instead focusing on subtleties that that “you know, but often don’t think carefully about.” One such subtlety is how the center matches the area’s current and future demographics, along with potential customer bases. Very often, even sophisticated buyers make mistakes by acquiring a center with high vacancy, assuming they can simply apply standard leasing techniques to fill it, only to find that it remains vacant. The key: understand that areas, like people, change over time along with their buying patterns. After all,
“You don’t buy the same way you did 10 to 15 years ago, and a submarket doesn’t either.”
Through two of his recent transactions, Shane further illustrates this point. A center in Duluth, Georgia had suffered continuous vacancy until a buyer was found who understood that nearly 30% of the customers were of Asian origin. By focusing exclusively on that community, 100% occupancy was achieved within 12 months. Another center, located in a Latino community, had no need for the large 3,000 to 4,000 square foot spaces previously occupied by credit tenants. However, there was significant demand for 800 to 1,000 square foot spaces, and ironically, the rents they would pay for these were 2 to 3 times per square foot the rent of the larger spaces. The lesson: “By understanding what the tenants wanted, the owner was able to reconfigure the center to small spaces and increase his NOI well over 100%.”
After addressing site characteristics and financials of retail investments, Shane closed by disclosing several of the biggest but less obvious deal killers, including mismanaged or misrepresented CAM collections, co-tenancy clauses, occupancy clauses, capital expenditures for older centers, mismatched lenders, and bad appraisal. As a final thought, Mr. Shane added that “Successful centers can be in all areas and in all demographic profiles. While ‘Location, Location, Location’ is true, the definition of what constitutes a great location has changed.”