A
Value Add Property is one that has major upside potentail.
Value-Added properties generally carry some risk,
and often rely on a buyer’s understanding of
market trends, demographics and potential tenant needs
to be successful.
For example, a buyer may acquire an older single-tenant
office building with a short-term lease, in an office
market with an average occupancy rate of 90% and with
limited office construction. The buyer would allow
the lease to lapse, and then spend several million
dollars on renovations, raising the building’s
quality to Class-A status, while making the building
suitable for multiple tenants. Under that scenario,
the building would likely gain at least 90% occupancy,
and at much higher rents than before. That would increase
net operating income, which in turn would increase
the buyer’s return on investment. |