With all the recent uncertainty in the stock market, real estate is looking like a very favorable asset class. It's the only hard asset which cash flows, as gold and other commodities purely benefit from appreciation. Decent returns are available in Manhattan. Receiving a 6-7% return with long term upside is an attractive alternative to parking money in treasuries.
I was just involved in the sale of the restaurant condo at 115 Allen Street on the Lower East Side which closed yesterday. At $2,325,000, it sold for an in-place 6.8% return. Retail condos, especially restaurants, sell at higher returns than residential as they are viewed as having more risk. Even the most popular restaurants can come and go, so investors usually factor in reserves if the space needs to be re-tenanted.
115 Allen is located just off the northwest corner of Delancey Street and Allen Street. The restaurant
condominium is occupied by the restaurant/bar, Mary Queen of Scots. The operators are
parlaying their success from their first restaurant in the West Village, named Highlands. There is a new ten year lease in place with 3% annual increases and all real estate taxes paid over the base year 2010/2011. The space is approximately 1,800 SF on the ground and 1,110 SF on the lower level. The space recently underwent a $1,500,000 build out, which included a newly installed kitchen. The current restaurant owners have a full liquor license.
As Mary Queen of Scots has yet to become established, it remains to be seen if they'll stand the test of time. However if the space vacates, there will be plenty of demand as it's currently rented at around $100/SF or $16,000 per month, which is easily replaceable.
Better yet, an owner could stand to receive additional key money for the build out and liquor license if the space is surrendered to them. It's important to always read the lease to make sure the build out is the possession of the landlord in this event.
I have a good client whose restaurant has turned over four times in the last 10 years. I figured this would've made for a horrible, but he tells me that with the key money he's received every time, it's been better than if he received rent from just one steady tenant!
Other opportunities like Allen Street exist. I'm currently handling a NNN leased grocery store in Flushing. It has a long term lease at a substantially below market rent. We're offering it at a 5% cap. Based on their rent, you'd hope the tenant would vacate. For anlooking for stable cash flow, I'd challenge them to find a better alternative investment.