Niche properties

Tourist-Market Investment Tips

A CCIM shares strategies for maximizing assets in a tropical destination.

The atmosphere may be laid back in tropical tourist destinations, but solid investment opportunities can make some big waves. For example, Curtis A. Skomp, CCIM, senior commercial agent and broker/associate with Coldwell Banker Commercial Schmitt Real Estate Co. in Key West, Fla., recently brokered the sale of a $5.5 million mixed-use investment property at 117 Duval St. in Key West. Located on one of the busiest tourist blocks on the island, the property sold with one retail tenant occupying 4,800 square feet, two large three-bedroom/three-bath luxury apartments on the second floor, and income from a parking lot in the rear. Skomp is currently working with the buyer to reposition the retail and maximize the investors' return. Commercial Investment Real Estate asked Skomp to share some details about investment properties in tourist-driven markets.

CIRE : What factors are driving your retail space-use decisions for the property?

Skomp: When the sellers of 117 Duval St. constructed the building in 2000, they planned for the 4,800-sf retail portion to be eventually divided, but they never did it during their ownership.The buyer benefited from the sellers' preplanning: there are separate mechanical systems for three retail bays, including handicap bathrooms, along with separate plumbing, electrical, lighting, and HVAC systems.

The buyer is now transitioning to smaller retail bays to achieve maximum rental income. In our market there is greater demand for smaller stores,and on this block of Duval St. there is very little available supply.Leasing 4,800 sf as one space would achieve a rental income of approximately $80 per sf triple-net. Dividing the space into three 1,600-sf spaces attracts retail tenants that are willing to pay rents well over $100 psf triple-net. Dividing into three stores also creates less risk for the landlord if there is a vacancy.

CIRE : What major marketing challenges do you face in Key West?

Skomp: From an investment standpoint, the biggest challenge is lack of available properties to purchase.The island is only two miles by four miles.We have limited supply of properties and are thankful see a continued strong demand.Therefore, prices psf are generally much higher and capitalization rates are lowerthan what an investor would see on the Florida mainland.

Understanding demographics can be challenging too. Though Key West only has around 28,000 full-time residents, the population nearly doubles for about six months of the year from seasonal residents. Furthermore, more than 3 million tourists visit Key West annually and they spend a ton of money in our economy.Businesses and properties -- including retail, restaurants/bars, and hotels -- that cater to tourists can do very well.

Another challenge we face is logistics.Key West is nearly 150 miles from Miami and the mainland. Most potential tenants do not have another store any closer, so the distance between a Key West store and a location on the mainland adds to the tenants' expenses and makes it more difficult for them to justify the cost of bringing down goods, merchandise, and employees.

CIRE : What strategies do you use to overcome these obstacles with potential clients?

Skomp: We often provide details on tourist data such as tourist counts coming by car and Florida Dept. of Transportation counts at various intersections.Ourchamber of commerce provides tourist counts coming byplane and cruise ship that are very helpful.Potential investors also find the Smith Travel Report very useful in analyzing our market.

Typical buyers that we see generally know our market and may have other investments either here or in South Florida.We see both domestic and international investors, who already have an understanding of what drives our economy.

 

Jennifer Norbut is senior editor of Commercial Investment Real Estate.

Jennifer Norbut

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