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Small cap properties generally refer to commercial transactions where the market value of the asset is relatively small, certainly when compared with larger properties. Assets typically include “main street” based or smaller owner-operated businesses which fall into a value range that suits many smaller, often local, investors.
It’s not uncommon for small cap properties or businesses to outperform other, larger, more stable assets where the cashflows are already optimized. So, whilst the values of smaller cap properties may be more volatile, the opportunities for the upside are, as a result, greater.
But, as many small caps need more intense management, as you can appreciate, there are plenty of issues regarding tenants, management, and business matters to deal with. Therefore, no matter whether you are a landlord or tenant, seller or buyer, or business owner of small cap real estate assets, our professional commercial property advisors at Century 21 will be able to assist.
Let us advise you about issues relating to small cap assets such as…
Small cap investors will always look for well-located properties close to population catchment areas and with good accessibility and potential for long-term growth. Business owners will, obviously, want an established or up-and-coming neighborhood, close to transport links and good pedestrian flows—so, what constitutes a great location?
Small cap properties are rarely purpose-built and many have been adapted from other uses, sometimes even having a couple of different uses in the same building such as a shop on the ground floor with offices above.
Normally the usage of small cap is commercial, such as a chamber of small offices, but are tenants allowed to sub-let or have showrooms or meeting centers in the unit? Also, for example, is there a limit on the maximum number of occupiers per unit.
DURATION OF LEASES
Leases are typically flexible starting from 1 or 2 years but this can depend on the state of the market, the demand, and supply factors in the immediate area, and so on. Longer-term leases may be agreed upon if, say, the ground floor space is occupied by an established tenant.
RENTAL AND INVESTMENT YIELDS
It’s not unusual for small cap properties to show higher investment yields than other commercial assets, partly as they may be considered as a riskier type of asset, but also, often, require more management attention.
It should also be established if investment yields or returns need to be calculated on a gross or net basis, ie before or after operating expenses are deducted.
The commercial specialists at Century 21 are well experienced with small cap properties and are able to provide the right of services for your needs.
If you are a buyer or seller, owner, or a prospective tenant for a small cap property, don’t hesitate to call or email us now for the right advice!
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