How Canadian Shopping Plaza Investments Work

Nov 17 - How Canadian Shopping Plaza

Canadian shopping plaza investments are increasingly standing out as prime choices for private investors. So how do they work?

Canada’s commercial property market continues to perform well in the retail sector, with Calgary and Edmonton emerging as top options. While investing in local shopping plazas is one of the more straightforward options when it comes to investing today, it is still a new concept for many individuals. How do private investors get in and out of these opportunities, how do they earn returns and what is important to look for in well performing properties?

Getting Into Your First Shopping Plaza Investment

Whether you are new to commercial real estate investing or are an experienced investor looking to hedge your risk, the smartest way to get involved with shopping plaza investments is likely via a syndication or partnership. These structures provide you with the ability to invest less capital and benefit from the financial strength of multiple accredited investors as partners. Once you become comfortable with this asset class, it is relatively easy to scale up and acquire additional interests in other shopping plazas and retail properties. This method of investing ensures additional safety and consistency in your investment performance, along with greater diversification.

Getting Out of Your Shopping Plaza Investment

While investors who are the sole owners of a property can opt to sell their properties on a whim, pooled investments are generally managed based on a predetermined timeline. These may be set deadlines for putting a property on the market, deciding to hold an asset indefinitely with the option to sell and cash out your personal stake at any time. As ab example, owners may decide to re-evaluate the investment after 5 years and vote on whether to continue to hold or liquidate a property, depending on the market and future performance projections from that vantage point.

Yield, Income, and Cash Flow

One of the chief reasons sophisticated Canadian investors choose retail real estate investments is for the consistent yields. Cash flow is generated from renting units to business tenants, and sometimes via additional revenue streams. Well-written retail leases can provide landlords with incredible upside potential over a modest period of time. Net operating income (NOI) has been improving thanks to technology and increased efficiency in property management. Cash distributions really depend on the investment model, but for many investors, the passive income from these properties is more than enough reason to invest in retail properties.

Capital Gains

In addition to income and tax benefits, Canadian shopping plazas also offer investors the potential for substantial capital gains from appreciation. While values will fluctuate over time, they have so far proven to always bounce back higher and are currently on an upward trajectory. For smaller retail centers there is always the possibility of increasing equity at any time via value add improvements and higher rental rates.

Canadian shopping plazas have a lot to offer private investors and are relatively easy to navigate. However, real performance will all come down to the individual investment and most importantly, who is managing the property on a daily basis.