The latest research shows that apartment shopping malls have one of the highest resale rates of all types of retail property. This sharp increase in interest rates has caused a significant rise in resale rates, as one in ten consumers sold their house within a year of purchase. But there are still many challenges facing owners of apartment shopping malls, and the future of this asset class is a little unclear. Read on to learn about the latest trends in this asset class.
Increase in sales
According to recent data, more Manhattan apartments were sold in the third quarter of 2012 than at any point in the past 32 years. This is the latest sign of a faster than expected recovery in the apartment market. But it’s not all good news. Many apartment shopping malls are suffering, too. The market is still recovering from the recession, but prices have begun to fall. But despite the bleak outlook, some apartment owners are feeling the heat.
As land becomes scarce in many cities, U.S. mall owners are looking towards adding more apartment and hotel units. This is a sound move for landlords, who can expect higher property values and greater income. But how do apartment owners benefit? Here are some key benefits of adding more rental apartment buildings to shopping mall properties:
During the first quarter, sales slowed to their slowest rate in five years. The slowdown in new luxury buildings and the ongoing rebellion of condo buyers against high asking prices contributed to the slump in Manhattan’s apartment market. At the same time, sales were down for other parts of the country. However, in New York, the slowdown in sales could be blamed on the weak profit outlook. However, one good thing about the market is that it will stay this way for the foreseeable future.
Site intensification
Developers have stepped up their efforts in the apartment sector, with some of the largest in the country. Toronto, for example, has seen a recent proposal to build 36 new residential towers there, with an overall capacity of 30,000 people. While the mall itself would remain operational, the proposal is a significant step forward. The Yorkdale Shopping Centre, for example, will receive significant redevelopment, with new residential towers and office buildings added to the site. Similarly, the Hillcrest Shopping Centre will undergo significant redevelopment.
The addition of apartments to an existing shopping mall will not only attract shoppers, but also key retailers. An on-site grocery store is a bonus for new residents and will enhance the marketing and leasing of the new apartment buildings. In addition to retail tenants, apartment developers will also be able to build higher-quality buildings than those of a condominium. This will attract high-quality tenants, and avoid any wear and tear problems from apartment buildings.
In addition to adding retail space, landlords are turning to residential intensification on shopping mall sites in Canada. In areas with a housing shortage, this trend offers a significant opportunity for landlords. In Toronto, for example, multifamily development is a key factor in the success of the downtown core. The region is ripe for intensification, as the demand for housing is particularly high. As a result, most on-site buildings are being marketed as condominiums.
In Auckland, three separate apartment development blocks are currently on the market. Bayleys Auckland is marketing these sites individually and will conduct three separate tender campaigns for each of them. The sale process will be complicated, but the result will be a high-quality, modern apartment shopping mall with an excellent location. So, it is definitely worth the wait. Consider this new development for your next apartment. You will be glad you did!
Return on capital
Buying apartment complexes for investment is a great way to increase your real estate holdings while generating multiple streams of income. You can use these multiple income streams to pay off your mortgage, which will ultimately increase your equity. Apartment complexes are an attractive investment choice because they offer strong monthly cash flow, which will make lenders more willing to finance them. Additionally, you’ll benefit from a 20% qualified business deduction, which means all expenses are tax-deductible.
The return on capital of an apartment shopping mall depends on several factors, including the location and size of the complex. Typically, investors invest in class “B” or “C” properties, which require less management, but don’t require as much cash to purchase. As a result, the return on investment can be considerably less than with larger properties. The smaller properties, however, won’t provide as much money in return.
Future of the asset class
The housing shortage has a huge impact on apartment sales, and the economy as a whole is shaky. But one developer is hoping to capitalize on this fact by developing two more apartment shopping malls in Toronto. Oxford Realty Investments, a property investment arm of the municipal pension fund in Ontario, has the luxury of operating on a longer time horizon than other developers. In Toronto, the Yorkdale mall is set to break ground this fall, and is situated in a densely packed neighborhood sandwiched between two major highways.
While a non-fortress mall is struggling, many others are trying to buck the trend and create a viable business model. The latest project, MainPlace, has apartments built in several locations. In fact, there are at least 10 other shopping centers in Southern California that are currently in the process of converting space into new residences. These projects include the Bella Terra and The Americana on Brand. And in California, Merlone Geier Partners estimates that at least 192 U.S. malls have some kind of proposal for adding housing. The redevelopment of the Sportsman’s Lodge Hotel will result in 520 apartments.