Convenience or Strip Center
This retail subtype is characterized by having a row of stores, with on-site parking often found in the front of the stores. Open canopies may be used to connect store fronts of the tenants at the center. Average size may be 10,000 – 15,000 SF and larger, with a trade area of less than 1 mile. A typical anchor for these types of centers may be convenience stores, such as a mini mart.
Source: ICSC
Putting ‘Convenience or Strip Center’ in Context
Scenario Overview:
The Jefferson Family Estate has owned the Mandarin Grove Shopping Center, a 12,000 SF convenience or strip center located in the Mandarin neighborhood of Jacksonville, FL, for over two decades. The center, which serves the surrounding residential community, includes six tenants with a mini-mart as the anchor tenant. The center’s trade area is less than a mile, drawing customers primarily from the immediate neighborhood. On-site parking is located in front of the stores, making it convenient for shoppers to access each retail space.
Background:
For years, the shopping center has provided steady, albeit modest, cash flow for the estate. The property has been in a “set it and forget it” mode, with minimal active management or investment. The Jefferson Family Estate, composed of multiple generations, has historically taken a conservative approach, preferring stability over aggressive growth. However, recent leadership changes have led to a shift in strategy. The younger generation of the family, now in control of the estate, sees an opportunity to increase the value of the center through a value-add strategy.
Value-Add Strategy:
The family’s goal is to enhance the property’s net operating income (NOI) by improving the tenant mix, optimizing lease structures, and making strategic capital improvements. These steps are designed to increase the property’s appeal to both tenants and shoppers, thereby boosting rental income and the overall value of the asset.
- Tenant Mix Optimization: The Jefferson Family Estate identifies a couple of underperforming tenants with leases expiring within the next 18 months. They plan to replace these tenants with businesses that have a stronger draw in the local market, such as a popular local coffee shop and a boutique fitness center. These tenants are expected to pay higher rents and attract more foot traffic to the center.
- Lease Restructuring: The family also reviews existing leases, finding opportunities to restructure them to more favorable terms. This could include negotiating longer lease terms with annual rent escalations or shifting some tenants to triple net (NNN) leases, which would pass more of the property’s operating expenses onto the tenants.
- Capital Improvements: The center’s façade is somewhat dated, and the parking lot has seen better days. The estate allocates a budget for minor renovations, including a fresh coat of paint, updated signage, improved landscaping, and resurfacing of the parking lot. These enhancements are intended to increase curb appeal and justify higher rents.
Outcome:
After implementing these strategies, the Jefferson Family Estate sees a significant increase in NOI, which boosts the property’s value. The improvements not only make Mandarin Grove Shopping Center more attractive to potential buyers but also provide the family with a stronger cash flow while they hold the property. Should the family decide to sell, the center’s enhanced performance and improved tenant mix could command a premium price in the market.
Conclusion:
This hypothetical scenario illustrates how a convenience or strip center, such as Mandarin Grove Shopping Center, can serve as a stable, long-term investment for an estate like the Jefferson Family’s. By employing a value-add strategy, even a relatively low-risk asset like a convenience center can see substantial growth in value, benefiting the owners whether they choose to continue holding the property or prepare it for sale.
Frequently Asked Questions about Convenience or Strip Centers
What defines a convenience or strip center?
A convenience or strip center is a retail subtype characterized by a row of stores, typically with on-site parking in front. These centers may include open canopies connecting storefronts and are usually 10,000–15,000 SF or larger, with a trade area of less than 1 mile.
What type of tenants typically anchor a strip center?
Typical anchor tenants include convenience-oriented businesses such as mini-marts.
What was the size and tenant mix of Mandarin Grove Shopping Center?
Mandarin Grove Shopping Center is a 12,000 SF strip center with six tenants. Its anchor is a mini-mart, and it serves a trade area of less than one mile, primarily drawing local residents.
What investment strategy did the Jefferson Family Estate apply to their strip center?
They applied a value-add strategy, which included optimizing the tenant mix, restructuring leases, and making capital improvements to increase NOI and overall property value.
How did the family improve the tenant mix?
They identified underperforming tenants with soon-to-expire leases and planned to replace them with stronger local businesses such as a coffee shop and boutique fitness center expected to draw more foot traffic and pay higher rents.
What lease restructuring methods were used?
The estate sought longer lease terms with annual rent escalations and considered shifting tenants to triple net (NNN) leases, transferring more operating expenses to the tenants.
What capital improvements were made to the center?
Upgrades included a fresh coat of paint, new signage, improved landscaping, and parking lot resurfacing to increase curb appeal and justify higher rents.
What was the outcome of these improvements?
The center experienced a significant increase in NOI and overall value. The improvements made the property more appealing to both tenants and potential buyers, enhancing both cash flow and marketability.
Why are convenience or strip centers considered stable investments?
They serve nearby residential communities with essential goods and services, providing consistent, if modest, cash flow and making them suitable for long-term, low-risk investment strategies.
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