Hello Everyone-
I’m curious if anyone has ever owned or invested in antique / craft malls or flea markets – with the real estate included. I’m mostly referring to the business model where numerous vendors rent retail space (typically month-to-month) in a large building. The retail vendors are responsible for stocking and pricing their merchandise and keeping their “retail area” clean. The owner of the “mall” provides checkout services for customers and staffing for the “mall” (ie. the individual retail vendors do not need to staff their retail booth).
At the end of each month, the “mall” owner cuts a check to each retail vendor for their sales for that month. Each retail vendor pays the “mall” owner a monthly rental fee for their retail space – typically like $1.50 to $2.75 per square foot per month in my area. Some mall owners also charge a commission on each sale (typically like 1% to 10% of gross sale price).
I have prepared financial statements and tax returns for a few of these businesses, and assisted the owners in arranging financing for these properties. Compared to other investment real estate, I’m always amazed at how profitable these investments can be.
The downside is that there can definitely be more management required with this type of real estate. However, with a good manager (ie. employee) in place, I’ve personally witnessed mall owners making 15%+ cap rates, while only devoting 2 to 3 hours per month to the business and property.
Years ago, I had a hunch that this business / investment model may just be a fad. However, I have personally witnessed some of these properties absolutely thrive over the past 15 to 20 years. Most are always at or near 100% occupancy, and some have waiting lists with dozens of retail vendors waiting to get space.
A commercial bank lender with whom I have done a lot of business over the years (and who I have great respect for) absolutely loves this business model – provided the owner is a good operator and has a decent manager. He noted the similarities of this business model to large self-storage complexes that have a part-time or full-time manager on-site. I had never really thought of it in that regard, but I guess in both instances the owners are just renting small spaces to individuals.
I apologize for the long-winded post. I’m currently considering purchasing either a self-storage facility (at an 8% to 9% cap rate with a bit of upside potential), or one of these antique / craft malls (real estate included – at a 12%+ cap rate with more potential upside than the self-storage facility).
Any feedback / personal experience is greatly appreciated. Thank You!
