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How real estate professionals can revitalize a “failed” site

Posted by Yijy8kNUMO on July 12, 2017

Every market has a site that seems to be perpetually vacant despite the quality of the location or curb appeal. These sites can remain vacant for years at a time depending on market conditions, and they eventually develop a stigma to potential buyers.

Commercial real estate professionals and property owners know that one of the hardest challenges to overcome is filling a site that has remained vacant long after a business has failed. The building requires regular maintenance, but doesn’t generate revenue. Despite the stigma, these sites can be profitable to savvy investors.

Real estate professionals just need imagination and statistically sound data.

Last month I attended a conference on commercial real estate development in Las Vegas. One of the hot topics at the conference was using geospatial analyses for urban revitalization and gentrification. The developers wanted to revitalize the sites by finding profitable businesses to take the space and avoid the cost and hassle associated with new construction.

Everything old is new again

The first step to revitalizing a failed site is to examine the local marketplace to see what’s missing. A powerful question to ask is what business should be there but isn’t? However, a common mistake that commercial real estate professional make is determining what’s missing without considering demand.

In many cases, an industry is not represented in a market simply because the local demand is not enough to sustain the business. I have seen many sites churn specialty food stores, pet supply shops, and frozen yogurt vendors because the local market was not right.

To ensure a viable gap is filled, real estate professionals need reliable data to make sound decisions.

I recently analyzed a site in Yucaipa, California, a medium-sized city 90-minutes east of Los Angeles. After examining the buildings characterizes to see if there was something fundamentally wrong or awkward with the layout, I established a 10-minute drive time boundary around the site and ran a Retail Marketplace Profile report in Esri’s Business Analyst web application.

The report displays a series of common retail uses by NAICS codes, identifying both market surplus and leakage ratios. I honed in on beer, wine, and liquor stores and discovered there was a retail gap of nearly $4.1 million a year with a market leakage factor of 37.9. This ultimately meant that of the 55,000 residents who lived within a 10-minute drive of the site, 37.9 percent of the local demand for home alcohol purchases were occurring outside of the local market.

Although there were other retail industries that had higher retail gaps and potential, the current site had the characteristics of a bar or a liquor store, abundant parking, minimal window exposure, secure entry/exit points, and a loading dock in the rear for large orders. These characteristics ultimately mean a potential buyer wouldn’t have to make major changes to the buildings structure or layout, saving both time and money to repurpose.

To avoid a costly mistake in my analysis, I compared the demand for alcohol purchases in a store to alcohol consumption at bars and clubs. As a service, Business Analyst hosts datasets from both public and private organizations, making it easy to switch the focus of an analysis to another industry.

I theorized that if there was a surplus under “drinking places – alcoholic beverages” that may explain the gap. However, my analysis showed that there was a retail gap of $628,447 and a leakage factor of 27.8. This information reinforced my theory that the site could be used to fill a legitimate gap in the area. The best site is worthless though without a way to share the value with investors.

Closing the deal

Commercial real estate professionals understand that having the right answer is useless if they cannot effectively communicate with the stakeholders. Ultimately, what real estate professionals need is a way to easily and more effectively share recommendations with their clients. Because all the data used in Business Analyst for reports are hosted in a cloud environment, real estate professionals can quickly export configurable infographics to represent a site in one image.

Source: The Business Journals, June 25, 2017

Author: Alexander Martonik

Image Credit: Santa Cruz Patch

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