Shopping Center Valuations?

[David Chan]

How does one go about valuing shopping centers?

Should I discount the cash flow?

Use the Cap Rate to determine value?

[Joel Owens]

David that is such a broad question.

Shopping centers vary by age.Generally everything recycles after so many years.For instance if a shopping center is 40 or 50 years old it is past it's life cycle.Generally at that point you tear it down and build new.

If a shopping center is say 20 years old many will just reface the outside to make it look new and repaint and re-stripe the parking lots.This is all predicated on if the shopping center still has a viable location or has growth shifted and now the center is int he old part of town.

If it's in the old part of town refacing might not make sense and instead you buy at a lower basis to rent to Big Lots,outlet stores,etc. for less money.Still a tenant that will rent from you but at a lower cost because the area has shifted.

With shopping centers it's all about the corner and access from 2 points,red lights,traffic volume and flow,etc.

Anchored shopping center versus unanchored,tenant mix with credit rated tenant and frachise concepts versus mom and pop operations.

Just like with houses you can run into big repairs with older shopping centers.Don't pay attention to current leases as much going in as what is market rent now and any leases fixing to reset.

Also need to know level of shopping center saturation in a 2 mile radius depending and could be tighter or bigger in size depending on rural,subrurban,or urban core,and population count and demographic.

Hope it helps.