- Beer & Nachos Don’t Come in a Box. As the online world puts the hurt on traditional retailers, more and more consumers are happy to receive their goods on the doorstep. Malls are struggling and numerous retailers are closing, but drinking a cold beer and eating hot nachos with your friends can’t be delivered in a box.
- Expensive Infrastructure. Restaurants are one of the most expensive properties to build on a $/sf basis, which can help the landlord in several ways. First, the high cost makes it more difficult for the competition to enter the market. Second, once a restaurant gets established, it is very hard to “pick up and move” to try and save a few bucks on rent. Lastly, once that infrastructure is installed, it will be that much easier to the replace the tenant when they leave.
- Predictable Rent. If you take the time to learn a few of the basics about restaurants and rent, you can quickly determine if the location & rent is sustainable. For example, many landlords love to raise the rent as much as possible on their buildings, but if you know the sales of the restaurant, you can determine where the rent needs to be so the restaurant stays viable. To make sure you have predictable rent, the lease should require the tenant to give you sales numbers.
- Upside Potential. There are very few real estate investments you can take advantage of great sales like you can in restaurants. For example, you may have a modest base rent, but structure a deal whereby the tenant pays a percentage of sales if sales exceed a certain threshold. This is a win-win for both the landlord and the tenant, and your return just went up!
- Triple-Net Leases. Most investors love triple-net (NNN) leases, and most restaurants are NNN leases! A triple-net lease establishes that the tenant pays all the operating expenses of the property, which reduces the landlord’s expense exposure and reduces management headaches (one of my favorite parts!).
In the past, restaurants were often viewed as “risky” investments by investors and bankers. With the evolving world of retail, I have become a believer that restaurants can actually be a safer bet than your traditional retailers. If you’re thinking about investing in commercial real estate, here’s a few reasons why you may want to consider a restaurant property:
I was recently reading the October issue of Commercial Investment Real Estate, which is put out by CCIM. They always publish interesting statistics and one that made me pause was a table showing the most expensive office markets in the world. The most expensive being:
1. Hong Kong @ $290/sf/year
2. London @ $262/sf/year
3. Beijing @ $188/sf/year
With downtown Boise office rates in the $20 - $30/sf/year for Class A space, we truly are a bargain!
As the end of the year approaches, this is a perfect time to start thinking about taxes and how to best maximize value. Many folks that own investment real estate often love the tax benefits. BUT, if you're thinking of selling your investment property within the next 3 years, it may be wise to really consider some of those "property expenses" you have the accountant write off against your rental income.
Lets face it, many folks expense as much as they think possible against their rental income. This reduces the net operating income (NOI) for the property, and thus the tax liability you owe. This could be a big mistake if you're thinking of selling at any time during the next 3 years.
For example, lets say you expense an extra $1000 against a property with expenses that may be a little questionable. If you're in the 33% federal income tax bracket, this will save you $330 ($1000 x 33% = $330) on taxes you owe Uncle Sam. BUT, at the end of the day, your taxes show the property NOI is $1000 less.
When buying, most investors want to see the last 3 years of property tax returns, since these are the most reliable and verifiable. In addition, investors often base the purchase price on the net operating income (NOI).
When selling, we want to maximize the NOI. If we sell a property at a 7% capitalization rate (similar to a rate of return), then $1000 of increased NOI is worth $14,286 ($1000/7% = $14,286) in increased sale price. If we take into account selling cost of 7.5% and assume we didn't write off that extra $1000 in expenses for 3 years ($330 x 3 of increased taxes), we would net $12,224 more for the property.
In summary, for every $1000 of increased NOI (i.e. fewer expenses), you will make an additional ~$12,000 when you sell. Now that's a good investment!
Since the purchase of the old Bob Rice Ford property earlier this year, CWI has been busy planning how to best serve its students with an Ada County campus. After numerous community input sessions and completing a master vision for their new campus, CWI has announced plans for a $180M bond in November which will enable it to expand its services both in Canyon and Ada County to meet the needs of its students.
Several large stakeholders in the West End met to update the group on their plans and discuss possible shared parking strategies. If all these projects happen, we will see ~$150M of new development in the West End by 2020 and the need for ~1500 parking spaces. If some shared parking strategies are not determined, we could see ~10 acres of the Main/Fairview corridor paved as surface parking.
A developer is proposing to build a mixed use neighborhood scale development at the former site of Jerry’s Market. In addition, they are in the process of purchasing the Islamic Center and have 5 townhomes planned for that site. The development is likely to contain ~7000 square feet of commercial space and ~20 condominiums above the commercial space.
The City of Boise has put considerable effort into spurring downtown housing, and it is working. A neighborhood meeting was held in August at the vacant lot just west of the former Twin Dragon. The developer presented some preliminary site plans and renderings and is anticipating a development of ~41 housing units. No time frames were given, so stay tuned for more information.
CWI unveiled its plan for the Ada County campus at the old Bob Rice Ford property during August. These plans call for a 3 phase development that could last up to 40 years and ultimately have approximately 600,000 square feet. The planned initial phase is ~150,000 square feet. As one of the fastest growing community colleges in the nation, it is exciting to see the plans for this catalytic project coming together.
After months of work, the Greenbelt on the south side of the Boise River is connected between the Riverside Hotel and Ann Morrison Park. This new connection will complete the Greenbelt on that side of the river and allow pedestrians and cyclists another route from the west into our downtown.
Idaho Statesman Link
The City continues to work with a developer on a possible housing development at the old Boise Marine site, and the final environmental tests completed in August indicate residential development on this property is viable. The City and DEQ have been working for the past 2 years through the Brownsfield program to complete this work and help remove possible barriers to development.