Understanding Multi-Tenant Property Investment

Understanding Multi-Tenant Property Investment

A multi-tenant property has multiple lessees with multiple units with either gross or net leases. These leases are rental agreements between each lessor or sometimes several lessees in a larger, multi-unit property. Typically, lessors rent out each unit in a multi-tenant property individually to a single tenant. Ideal multi-tenant investment properties consist of a diversified portfolio of reliable tenants in a prime location selling consumer goods. By obtaining help from a professional broker like Joseph & Camper Commercial Real Estate Brokerage, you can build your ideal multi-tenant properties portfolio.

Multi-tenant property examples:

• Apartment complexes

• Healthcare centers

• Industrial warehouses

• Office centers

• Shopping malls

• Repurposed urban buildings

• Retail strip malls

• Two-tenant centers

Multi-tenant property investment has some challenges

Tenants have a strong desire for a gross lease

Typically, tenants of multi-tenant commercial properties want a gross lease rather than a net lease. This is because with a gross lease - lessees do not pay for secondary expenses like maintenance, insurance, or taxes. While you may be successful in negotiating a net lease, you could lose some prospective tenants if they only budgeted for a gross lease.

For more information about leases – check out our website blog: Commercial Real Estate Leases & How They Work

Frequent turnover of tenants

More frequent tenant turnover is simply part of the short-term lease environment. The positive side of that is flexibility, but often you may feel like you are dealing with a revolving door of lessees. This uncertainty regarding vacancies is challenging as you develop your long-term income projections.

Added responsibilities – Having a variety of tenants does help protect against market disruptions, but it adds to management responsibilities. These include accommodating payment options, managing multiple leases, and handling emergencies.

Maintenance costs are higher

Unless you are successful negotiating a net lease, you (the lessor) is responsible for common area maintenance and building expenses. It’s one of the biggest drawbacks to investing in multi-tenant properties, involving frequent, time-consuming, and expensive tasks. From plumbing repair to maintaining security systems.

Managing leases, tenants and properties

Property management services allow companies to hire a third-party to handle day-to-day tasks such as tenant relations, lease compliance, and contract services. Joseph & Camper offers property management services tailored to the lessor’s needs, customized to maximize asset operating efficiency, tenant management, and sound management practices. Frequent inspections of commercial properties, face-to-face meetings with the tenants, and careful review of the financial operations provide a foundation for maximizing profitability, long-term stability, and growth.

Multi-tenant property investment does offers advantages

Flexibility due to shorter lease terms

The shorter lease terms with multi-tenant properties typically last between three to seven years. Leases with lower commitment help lessors to land higher value tenants, which can facilitate building upgrades, allow for regular rent adjustments, and help sell the property during a prime opportunity window.

Diverse portfolio of tenants offers steady income

Every industry does not experience disruption at the same time or to the same degree, so multi-tenant properties with a diverse lessee portfolio are equipped to survive recessions and offer a steady income for lessors year after year.

Scalability benefits current tenants

With multi-tenant properties, lessors can lease to tenants early in their growth journey. As tenants business grows, reliable tenants (rather than having to move) can simply lease out more units. Lessees benefit by keeping costs low while growing, and lessors benefit from the value added to their property.

Low or complete vacancy not a big risk

There is a low risk that all the lessees of a multi-tenant property will leave at the same time. By staggering the length and end dates of the leases and leasing to tenants from various industries, you can further help prevent low vacancy.

Now you have a better understanding of investing in multi-tenant commercial properties. Joseph & Camper Commercial Real Estate Brokerage helps clients explore commercial listings all over Central Illinois, including Peoria, Tazewell, McLean, Woodford, Marshall, Stark, Fulton, and Knox counties. Use our map to explore a wide variety of commercial properties in Central Illinois. Contact us today or call 309-691-5919.