The market has been heating up for the past few years and a lot of businesses are now struggling to keep afloat. As more people move into cities, property investors have become increasingly interested in small businesses as a new investment avenue. But as savvy business owners know all too well, it’s not always easy to sell your company — especially when you’re just starting out.,
The “target market for small business” is a phrase that has been used recently in the real estate industry. Small businesses are being targeted by property investors as the market heats up.
Small enterprises are attracting the attention of certain real estate investors seeking for the next big thing.
Gas stations, physicians’ offices, and corner grocery shops are being purchased by a new breed of property corporations. They perceive an opportunity since large asset managers normally shun these hazardous properties.
Withco, a New York-based landlord that creates rent-to-own agreements with small companies, has secured $30 million in venture capital from Founders Fund, Canaan Partners, Lennar Corp., actor Will Smith, and athletes Venus Williams and Kevin Durant, among others.
Keyway, based in New York, acquires and rents medical office spaces from small firms. Keyway said earlier this month that it had secured a $70 million loan facility from a consortium of banks to help it finance its acquisitions.
These companies are the latest in a long line of real-estate investors that have ventured into less well-known areas of the property industry. Because historically low loan rates have driven up the costs of apartments, warehouses, and other more standard commercial-property types, they are seeking to purchase unorthodox assets, such as cold-storage facilities and short-term rental residences.
According to Spenser Allaway, a senior analyst at real-estate analytics company Green Street, major investors frequently avoid premises inhabited by small companies since they are more likely to close and cease paying rent than huge conglomerates. During the first year of the pandemic, numerous stores and restaurants were forced to shut for weeks or even months as a result of the disease.
In LaGrange, Georgia, a dialysis center is housed on a Keyway-owned property. Some real estate investors are putting their money into areas that huge asset managers consider dangerous.
Cook Commercial Partners photo
However, in the last 18 months, more investment funds have begun purchasing single-tenant buildings, particularly small companies. Last year, Store Capital Corp., a real-estate investment trust focusing on the industry, spent $1.5 billion in 336 buildings.
While tiny renters are more likely to fail, Ms. Allaway says they frequently agree to disclose more financial information with their landlords. Building costs are also cheaper, which makes them more desirable to certain investors.
Withco is attempting to reduce vacancy rates in part by allowing renters to purchase homes at set prices. A renter receives 2% of the purchase price credited toward a down payment for each year of rent paid throughout a five-year lease. Kevin Song, Withco’s CEO, believes that renters who desire to become owners are more likely to remain and maintain the property properly.
Withco also thinks that giving small companies the opportunity to own property would appeal to socially conscious funds, which it wants to tap for funding. A medical-massage facility in Pennsylvania, a Mexican restaurant in New Mexico, and a pizza and grocery store in Tampa, Fla. are among the company’s latest purchases.
For the time being, Keyway is focused only on medical tenants to limit the danger of vacancy, according to Chief Executive Matias Recchia. Many doctor’s clinics have fared better than gyms and clothes shops throughout the epidemic.
Mr. Recchia said that concentrating on one area makes it simpler to determine which enterprises are likely to survive. Keyway, which was founded in 2020, has so far purchased buildings worth roughly $50 million on behalf of its investors and is in discussions to acquire another $200 million.
Mr. Recchia believes that tiny renters aren’t particularly dangerous as long as landlords do their homework. “Stops at Starbucks or Dunkin’ Donuts are also closing,” he remarked. “Any real estate investment comes with a level of risk.”
Konrad Putzier can be reached at [email protected]
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