Single Tenant Versus Multi-Tenant Commercial Real Estate

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For every investor that chooses to focus on single tenant properties, there are perhaps just as many that prefer to stick to multi-tenant properties. Instead of having to go through the process of closing ten individual transactions, they have the ability to get ten units in a single deal. This may come at a higher cost per property, but there is a valid argument to be made for closing a few deals in a year versus having to close several just to reach the same objective.

With a single tenant property, lease terms are typically longer, about ten to twenty years versus multi-tenant where most leases average about seven years. A stable increase in rental stream plus passive management responsibilities and little capital requirements also make a strong case, in addition to higher value retention. NNN leases are another major difference with single tenant commercial real estate, requiring the tenant to deal with ongoing expenses such as maintenance, repairs, utilities, and taxes. These leases are effective in protecting investors against the possible financial fallout of a multi-tenant property that happens to lose tenants. Investors should be aware that capital appreciation in a single tenant is typically modest.

Multi-tenant commercial real estate is generally considered a riskier first-time investment. It is vital to assess its prospective value based on economic conditions and the investor’s wealth objectives. These properties require active management, periodic capital requirements and have increased susceptibility to value loss during down cycle. However, if the market cycle is strong, there is higher upside potential.

When determining whether to go with single tenant or multi-tenant, it may be best to focus on the opportunity then how many units are within. A single tenant property may provide a greater return, but if you buy a commercial building or a multi-unit property there is the possibility of it appreciating much quicker than any single unit.

This update is provided to you by Park West Capital. We have over a decade of experience specializing in real estate financing and commercial lending opportunities. We have assisted numerous clients with growing their real estate portfolios and providing the funding resources. We firmly believe in accountability, excellence, integrity, entrepreneurship, and teamwork. Contact us at 888.808.9417 to learn more about how we can professionally assist you with your investing needs or fill out our hard money loan application and we’ll get in touch with you.