I am looking into a strip mall that is for sale and am int he process of doing my due diligence. I have placed a call into an insurance agent but I am wondering if there is anything in particular I should be asking. Any sort of coverage or special coverage that is recommended for strip mall? Any other thoughts or guidance would be appreciated.
thanks in advance!
Insurance is a very small component of what you should be looking at with these strip malls.
Now I want to make sure when you say strip mall you are talking about small retail strip centers and not an actual mall where people walk inside with shops on each side and a food court.
Those are two very different animals.
The insurance the expense might vary from what the seller has shown. The seller might have a paid off asset and you might be getting a loan with more lender placed requirements and amounts. The seller also might have a blanket policy that covers many properties and it was real cheap to add this one on.
So it's not that the sellers numbers might be wrong it's that their expenses and your expenses might be different based on a number of factors. You need to include these difference including the loan you will get as it affects returns for offer price.
If you could give me more info I can comment further. I specialize in retail centers across the country. I currently have tens of millions in price under contract with various clients.
There's nothing special about insurance for a strip mall. It's a Lessor's Risk policy that covers the property and provides general liability. You want to make sure it covers lost rents, but that and other key endorsements are generally included.
Some tenancies - like an exercise facility, commercial kitchen, or bar - can cause a problem, and it's worth asking your agent if any existing tenants present added exposure.
What Joel is referring to is if the existing owner has an umbrella policy covering a significant sized portfolio. The seller's existing policy might incur an incremental amount for adding this strip center.
I would be more concerned that the taxes would be going up based on a reassessment after sale. Is the current owner putting in a management fee in their expense numbers? Do they have a reserve account? Length and quality of leases?
Insurance seems like a small issue.
Joel - It is basically a strip center that is 70,000 square feet and two free-standing buildings each about 3000 square feet. The seller may be financing the deal and I don't expect them to be nearly as cautious (requiring excessive coverage) as a conventional lender would. My question is more along the lines of "What kind of coverage should I obtain?" as opposed to "Is the seller hiding expenses?"
Eric - It is funny that you mentioned 'exercise facility' because one of the tenants is a chiropractor that operates a rehab center. In addition, I have been talking with a gym about possible tenancy. So are you suggesting that insurance will be much higher with a gym as a tenant? You mentioned that general endorsements should be included. Can you give me an idea of what you'd recommend?
Without knowing the specifics of this center it would be very hard to comment further. Each strip center has it's own unique characteristics which has to be assessed one by one with a few similar traits mixed in.
So are you saying there is a large building of 70,000 sq ft and then two 3,000 sq ft buildings on varying parcels?? Or are you saying two 3,000 sq ft buildings and additional land totaling 70,000 sq ft of area??
I do not like large buildings with just 2 tenants etc. in there as there is a lot more risk involved. Per sq ft lease rate tends to be lower as well for taking on the larger amount of space versus broken up with more tenants can be less risky and yields high per sq ft lease rates for smaller spaces.
You can get brand new tenant grade to occupy large spaces so that has some security. The value play large vacant or half vacant boxes tend to be for funds that own lots of them so if one goes dark it doesn't take them under.
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