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Retail Condos Are Catching On

Net-lease assets are no longer limited to the biggest cities.

By Patrick Nutt | Updated on October 31, 2008

If you’ve ever strolled through Manhattan, you’ve most likely walked around Times Square, dropped into a name-brand clothing store and probably visited a nearby Starbucks for an afternoon latte, all without needing a car. These retail locations redefine the term “infill,” thriving on pedestrian traffic. And it may surprise you that many are actually retail condominiums, sold to investors seeking passive real estate income.

While these may not look like typical net-leased assets, their design and operations are almost identical to the usual freestanding single-tenant buildings so popular in today’s investment market. As with any residential condo, the owner typically owns the area within each unit’s walls, while the condo association maintains any common area outside that unit.

When investing in a retail condo, the buyer enjoys the passivity of a net lease, which translates to the tenant assuming all responsibility of payment of taxes, insurance and maintenance. Although the tenant assumes all responsibility from the lessor, the condo association generally alleviates the tenant of some maintenance and insurance responsibilities, which in turn favors both parties. The investor also gains a stable asset that can generally be re-tenanted without substantial retrofitting if the original tenant vacates.

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