1.) Longer-term leases and cash flow
Retail assets provide investors with longer-term leases and cash flow than multifamily assets. Retail tenants typically occupy space from 5 to 20 years depending on their use and market demand. The longer-term cash flow of retail tenants allows for favorable financing and a higher valuation for the property.
2.) Tenants Pay the Operating Expenses
Retail assets allow leases to be structured where all of the operating expenses are paid by the tenant(s). For multifamily properties, the landlord has operating expense responsibilities. For retail properties, net leases protect the cash flow that the investor has purchased.
3.) Ability to increase NOI as market conditions fluctuate
Retail assets can be configured to changing market demands. This includes annual rent increases for existing tenants, and/or higher lease rates. New tenants may be financially stronger and raise the value of the property for new tenants cash flow is capitalized at a lower rate. A retail asset can also be physically reconfigured to create more marketable suites, where multifamily spaces are bound by their existing construction and configuration.
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