I don't understand how commercial real estate making money in Houston (low income, for sale)

[misterno]

I live in Houston for the last 17 years and for the last 4-5 years and accelerated pace in the last 3 years, I have seen so many stores closed and never been rented by any company. This is all over the city.

We have so many malls, strip malls and all and believe me go to any neighborhood poor or rich, white or Hispanic, except for Walmart anchored exceptional ones, the mall and retail business is dying. JC Penny Sears Radio Shack, Macy's either closing down or on the way to bankruptcy. A quick internet search can reveal this is due to online shopping.

Lately, the rumor is that Kohl's burning cash quick so as Sage Stores. Maybe that explains why they have sales more frequent than ever before.

The reason I brought this issue up, I have more money left after investing fully in 401k and IRAs and this money keeps getting bigger. I was thinking of investing in land or a strip mall with a buddy of mine who has done this before. But my observation is telling me don't do it.

Yesterday I logged in to loopnet.net to see strip malls and offices for sale. I was expecting some groovy occupancy ratios but not 50% in most office buildings for sale. This is depressing. So the question is how do these investors still make money when occ. ratio is so low? They made their money in the good old days and they don't have to worry about it anymore? What about the new guys like me? What should we expect?

I know at least some Sears stores where the parking lot is almost empty all the time. There are so many other developments sitting idle for several years now and I don't understand why they keep building. Anybody understands?


This is a game where retail will definitely lose to internet, there is no way brick and mortar store can win against Amazon ebay or walmart.com this is impossible. It is not an if but when before most of these retail businesses die.


Did you know that the biggest women clothing store in the US is now Amazon? Who would think that women will be inclined to shop clothing online without trying it on or see herself in the mirror? That was a shocker to me as well.

I am not sure about other parts of the country, observation is strictly based on Houston area.

[Dopo]

I've wondered the same,
how in the h.... do some stores where nobody goes in make money

About the commercial property, makes me wonder if they don't pay taxes
is the only way it makes sense to me

[misterno]

It seems like luxury brands will hurt more because rich and their kids are always on the internet and why lose time in malls and macys just log in to Amazon or some upscale website buy whatever you want


But poor people, walmart, dollar stores dollargeneral and all they have to stay. Poor people don't shop online as much.


The problem is dollar tree or dollar general or stores like that they don't make much and they are in the trashy parts of the city so how is that gonna help real estate? Their cash flow is miniscule anyway.


I really don't understand how these strip malls or malls in general make money. Same in First Colony, so many empty stores and other stores keep changing hands

[radiolibre99]

Count me in on wondering the same thing. Nothing stays open for more than X amount of years in Houston. Something is always taking it's place.

Now one thing I did notice that is relatively big is cheaper shops in low income mostly ethnic neighborhoods. A lot of Fallas Paredes going up, 99 cent stores, resale shops and other cheaper boutiques. On the other end high end retail closer to the inner loop.

So perhaps the market for brick and mortar places might be either at the really high end or lower end with the places I described above. Middle class might mostly just do their shopping online.

[radiolibre99]

Originally Posted by misterno

It seems like luxury brands will hurt more because rich and their kids are always on the internet and why lose time in malls and macys just log in to Amazon or some upscale website buy whatever you want


But poor people, walmart, dollar stores dollargeneral and all they have to stay. Poor people don't shop online as much.


The problem is dollar tree or dollar general or stores like that they don't make much and they are in the trashy parts of the city so how is that gonna help real estate? Their cash flow is miniscule anyway.


I really don't understand how these strip malls or malls in general make money. Same in First Colony, so many empty stores and other stores keep changing hands

You beat me to it but I just don't get why people have not come to this conclusion as of yet? Seriously, what keeps people from actually just putting the pieces together to not get that the economy is more globalized now and that we are mirroring, albeit in a minimal way, the rest of the world in terms of commerce? Especially in the major cities. We're not third world in the old sense of the word because people still assume third world just means Sub-Saharan Africa or Mexican border towns, but I am talking of the pretty functional but wildly uneven cities of the world such as Rio, Moscow, Mexico City, etc. Not that we're anywhere near their level but when I visit major cities in the US such as Houston, LA, NYC etc, I think in terms of it being globalized. Some of the issues, such as the one brought up in the OP, I take a look at them in a similar way I look at things happening everywhere else.

[baggiegenes]

This works the same way all real estate works. It only matters what the occupancy rate of the property you own needs to be to Cashflow. If you make a great deal and can cash flow with only 20% occupancy then you will only make money with more. And the current market of 50% occupancy is fine.

If you need more than that to break even then you will need to buy in a good area and make improvements that will make your place a more desireable space. Or buy a place and cut expenses and slum lord it.

One other thing I will add is to remember that a lot of the stuff on loop net are being sold for a reason. Many have below market occupancy and the owners have decided to cash out rather than invest to bring the property back up to market. Most places that are fully occupied and minting cash are not for sale. So market may be a little better as a whole than you think based on listings.

A bigger concern would a ton of listings at 100% occupancy that don't cash flow. That would mean that rents have cratered and you can't charge enough to cover costs.

[TexasTony]

Many investors have been converting these giant retail outlet stores to warehouses where possible... The future is online retail and storage warehouses or distribution centers are the way to go. Also, I also found that the cap rates on loopnet are not accurate. Nobody gives the details how they came up with that number....

[cBach]

I would think renting out a property to a restaurant or pharmacy would always make you money.

[Dopo]

Originally Posted by cBach

I would think renting out a property to a restaurant or pharmacy would always make you money.

True,
but renting it out to nail salon and flower shop .... might not be as profittable

[ipuck]

I am not in the real estate business, but with the ultra-low interest rates, it doesn't take much to make a decent return right now.

Just assume you are borrowing at 2%, you can easily make 5-6% with 50% occupancy, and that's not including the appreciation.