One of our favorite retail value-add strategies is the pad site deal.
A pad site is an out-parcel building lot located within or adjacent to another piece of commercial real estate.
Think about banks or fast food restaurants in their own free-standing buildings in the parking lot of a larger strip center.
We like doing these types of deals for a few reasons, but number one is that it’s easy to make the numbers work.
The reason is simple, you already own the land. You essentially are developing a building with no cost basis in your land. This makes it much more feasible to find build to suit or ground lease deals that economically make sense.
Number two, National Retailers. Many times you find national retailers on these pad sites. National retailers are credit tenants. Credit tenants mean very low cap rates and a global buyers pool of investors who buy single tenant assets for income purposes.
Number three, you can pull income from the larger strip center while you work on your pad development deal, furthering reducing the project’s risk.
And finally, by bringing new tenants and foot traffic to your site, you are further improving real estate that you own and creating additional value. This is always a strong business practice.