The Art of Repositioning

By Jeffrey Weitz, President - North Rim Partners

Many of our friends have been challenged these days to create the highest and most profitable positions in their real estate holdings. There are many strategies for creating value when it comes to our investment properties.

Value in any market is determined by NOI and Cap Rate. NOI, or Net Operating Income, is defined as Total Income less Total Expenses on your properties. Cap Rate, or Capitalization Rate, is the return on Capital if you were to pay all cash for an investment. Today's cap rates have bean steadily rising since the economic downturn in 2008 which means that investors are requiring higher interest returns for their investment dollars.

What this means for owners of real estate is that sales prices are going down. For Buyers it means that the prices of investments are going down and the deals are getting sweeter.

So what is an owner to do in today's rising Cap Rate Market to create the most value in their properties? Reposition. Reposition. Reposition. What exactly does this mean? Essentially, by creating an increase in your NOI, you will increase the overall value in your real estate investments.

I had a client come to me last year who wanted to sell his long held retail property. After we did a broker opinion of value he realized that his current value was far below his appraisal a few years prior. What had happened to his value? Two things; he had a high rate of vacancy in his retail center and that drove down his NOI. In addition the cap rates for retail in his part of the city had gone from around 6% cap to 7% cap.

Now while as investors we are not able to control the market cap rates we can control the way our buildings look and how they attract tenants. We all now how important curb appeal is in a competitive market. So we strategized with him to do a full exterior facelift and renovation. Within weeks of our completion of the renovations and re-positioning with a new marketing and leasing program we were able to bring his Occupancy to 100%.

Full buildings mean increased NOI. Increased NOI equals higher building value, it's that simple. We use the 3-step method to reposition properties and increase their NOI's.

If you are interested in learning more about our methods and strategies for increasing value and thereby increasing profits in your real estate investments, give us a call to schedule a strategic repositioning meeting. Consider repositioning before you consider selling your investments, your pocket book will be happy you did!