Joseph Rizzuto’s Tips on Investing in Commercial Property in Staten Island
With the massive upheaval taking place in the commercial property market, it’s vital that investors understand the current climate and potential pitfalls that are snagging many commercial landlords. Staten Island, New York-based commercial property developer Joseph Rizzuto says the past few years have ushered in the most rapid shift in the retail landscape in modern history, which is reverberating across the entire commercial property sector.
Joseph Rizzuto of Staten Island, New York, lays out several important tips that investors and developers should consider before jumping into a new property or development project.
Does the Risk/Reward Level Make Sense and Meet Investment Objectives?
Commercial properties are loosely defined as either core, value-add, or opportunistic, which describes the general state of the property as well as the levels of potential risk and reward that it offers.
Core properties are in the most advanced and reliable shape. These are properties that tend to be in good locations, are well maintained and managed, and already have high levels of occupancy. Core properties generally have the lowest risk and therefore, the lowest reward as well, with limited appreciation in value but steady cash flow generation.
Value-add properties tend to be in less desirable areas than core properties, may not be in the best of shape, and could be dealing with a moderate to a high amount of vacancies at the time of purchase, giving them more significant levels of risk and reward than core properties.
Opportunistic properties are another step up (or down as it were) from value-add properties. Joseph Rizzuto explains that these properties are often rundown and completely vacant, requiring a more substantial investment of both time and money to realize their potential. New developments on empty land are also classified as opportunistic properties.
Regardless of how tempting a property’s risk/reward proposition may seem, ultimately, it’s far more important that it meets the investor’s objectives and help balance out their existing portfolio. That said, if a property is just too tempting of an opportunity to pass up, other parts of an investor’s portfolio could be adjusted to re-balance its overall risk/reward profile.
Screening and Choosing Tenants Carefully
It can be tempting to jump at the first opportunity to lease space out to a paying tenant, especially in a non-residential space. However, doing so to the wrong tenant could be disastrous, potentially impacting every tenant within that property in a negative fashion that could greatly reduce its desirability and value.
Joseph Rizzuto stresses undertaking a detailed screening process with each applicant that scrutinizes their past behavior and performance, studies their financial viability presently and over the long-term, and considers how well they will fit within the property’s current ecosystem.
Is the Location Right?
A location is not inherently good or bad, though it can certainly have some definable positive or negative characteristics. Rather, the relative strength of a location is based at least partly on the potential uses and tenants for the space and other external factors, such as the local demographics and the amount of local competition in the verticals in which that space might be used, all of which should be considered prior to purchase.