All Forum Posts by: Account Closed

Hi Martin,

Here are some ideas:

1.  New landscaping - drought tolerant landscaping can look great and save a lot on water bills. Many water agencies provide rebates and incentives which can help offset costs.

2.  Facade renovations - Making the facade more attractive can transform a new center's image and increase the attainable rents.

3.  New Pylon Sign - A new pylon/monument sign can also help change the image of a center, increase the visibility for the tenant's businesses, and be a great advantage/benefit for tenants.

4.  Parking lot seal/stripe - This can help a parking area to look fresh and clean

Besides the above items, maintenance can be even more important than upgrading a center.  Just making sure that all the common area lights are working, having a weekly sweeping/landscaping/pressure washing maintenance service can make a big difference.  

Good Luck!

Thanks everyone for the responses, lots of great points. I'm from SoCal where there has historically been strong and consistent long-term appreciation, but I understand that this can't be taken for granted and relied on.

An investor who invests in a property with an 8 cap return for a hypothetical amount of $1,000,000 will earn $80,000/year in cash flow. I

The 8% return provides the investor a strong return which is about equal to the 8.4% return for stocks between 1990 and 2008. However, the overlooked aspect of the investor's return is the appreciation of the property.  The property's value will likely increase at at least 5%/year over the long term. If the investor holds indefinitely, the property owner is basically receiving a perpetuity in the amount of $50,000/year. At a conservative 10% discount rate, this appreciation factor itself has a NPV of $500,000. That means the value of this investment is $1,500,000 whereas it's only being valued at $1,000,000 based on the cap rate (the cap rate seems to provide a sufficient return on its own that justifies the $1,000,000 investment value.)   Why would someone ever sell a property and give up the appreciation perpetuity that comes from "buying and holding" indefinitely?

The above analysis is an un-leveraged scenario which also doesn't even take into account tax benefits.

Am I missing something? This seems too good to be true and I can't understand why anyone would ever sell? Why isn't the appreciation factor taken into account when valuing real estate?