Buying more retail in very small tourist town? Want to know if it's bad idea to be competing against own tenants.
A property just came up for sale and I'm just trying to find a sounding board... my brother is the agent and I'm just trying to help research... so forgive me if it sounds like I don't know what I'm talking about.


We own two buildings in a tourist town.  Foot traffic is great.  We are owner/operator at one retail place... it's doing well, so much so that we opened another location across the street but are renting there.  

So we run two of the largest tourist retail stores in town already and they make for some good competition for other stores...


This property we're looking into is right next door, it's a small little complex with about 4-5 small retail rentals... my question is: is it a bad idea to get this many eggs in the same basket even though we have intimate knowledge of the town, foot traffic, sales, current tenants?  


Is is a bad idea to be a landlord for people who are going to be competing against your other businesses?  I'm a little worried people will assume we'll be unfair in our rent to help our other businesses or something (on the contrary, I'd actually like to see the other businesses thrive as much as possible).



It's a good deal in an area we know well, it's very e-commerce resistant as a tourist destination, we've seen an increase in sales year over year for last 10 years... am I overthinking this?
[{"id": "gnxcxvq", "text": "I get all the synergies you mention, but: Consider events of the past year and whether some diversification would be appropriate, instead of further concentration in the same market and sector. \n\nAlso a complication: are you going to ask for the right to review their financials? That's not unusual, but could certainly create a conflict.", "replies": [{"id": "gnxdufn", "text": "Yeah the step away from diversification is the biggest negative factor and we've always had an ongoing eggs and baskets convo... but at the same time, money we place in other areas seems to just stagnate because we don't know what we're doing.   I guess it's that concept of di\"worse\"ification.  Just have to weigh that against the potential pitfalls of the area... a wildfire could be a pretty big issue for example.", "replies": [{"id": "gnyb2b0", "text": "I'll give you sort of the exact opposite opinion. If you have a unique niche and knowledge, and you know that these properties will always have good foot traffic and the tourist town you're in is never going to lose popularity, then I'd say buy more there.\n\nYou couldn't be more of an expert about real estate in that place than you are because your business already relies completely on it. No regular advanced or would recognize the value as well as you can. You might actually be able to get a really good deal that way!  most other investors would probably be scared off.\n\nMy business operates out of industrial properties. My wife and I bought the building we are in 10 years ago.  We have since bought three other properties on the same block which we rent out to other people.  Are we diversified? Well, I would rather have four properties with four tenants then one big property in the same location with only one tenant.  And we own other real estate which is not right here with these buildings.\n\nWe know the area very very well that we own in.  For a variety of reasons it's a great spot for a lot of different types of industrial businesses to be based. So I'd be happy to buy more right there because I'm that confident in it.  this last year with covid hasn't changed my opinion whatsoever. Everybody is paying rent and not having any trouble at all.\n\nYou have insider knowledge about your area that very few other people have. I assume that you have other investments elsewhere so every nickel you have isn't going to be tied up in real estate on your street.  This next building sounds like a really good opportunity. If you feel like you can get it at a price that the numbers work for you, I would go for it. Good luck!", "replies": [{"id": "gnyju7e", "text": "I think the market knowledge outweighs the diversification problem.  I think my brother put an offer in so hoping for the best.  All depends if they keep it at the price they started with or not.  So... hoping for the best.  Thanks for the well reasoned vote of confidence.", "replies": [{"id": "gnyoi7r", "text": "Good luck!  I hope you get it.  We are closing on a 6 tenant industrial building in a few weeks.  It's so exciting to get a property worth owning!", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gnxh8lw", "text": "Sounds like you're putting all your eggs in one basket.  My suggestion would be to try to pick up some properties in other cities.  I have no clue how it will play out, but I wonder how well some of these small US tourist towns will do when Covid lets up.  I know a lot of the little towns around me have done exceptionally well since Covid and I don't know if that traffic will continue or people start going elsewhere.", "replies": [{"id": "gnxkjkh", "text": "It's been crazy... the death of the mall seemed to actually help us because people still want to get their shop on sometimes.  Then Covid came along and we became a prime \"staycation\" spot so foot traffic was high plus they had stim money... \n\n\nMy own 2c, I feel like there will be a pretty big pullback after the dust settles and people realize they are going to get F'd you know where by inflation soon and they should have saved more.  But overall I still see a trend of retail hotspots doing *really* well and the more far flung stuff going way of dodo or morphing into mixed use.", "replies": [], "depth": 2}], "depth": 1}, {"id": "gnxjrs5", "text": "We do this with real estate development but it's because we're investing a lot into a building. When we fully renovate a building/replace facade/etc we're know it's going to increase rents in the neighborhood so we buy as many buildings around us as possible. Our development increases the property value of the neighboring buildings we buy which means we can justify renovating those too.", "replies": [{"id": "gnxks2c", "text": "Huh, that makes perfect sense.", "replies": [], "depth": 2}], "depth": 1}, {"id": "gnxlxpe", "text": "If your limited in leasing to similar industry as yourself than yeh not great especially if by competing against them you run them out of business. If you don\u2019t have enough variety of tenants to lease it to then it\u2019s not worth it. But if it\u2019s such good foot traffic  like you say then that shouldn\u2019t be the case. Buying cash flowing or value add real estate is never a bad idea! Just don\u2019t limit your options because it\u2019s next door to your existing location. That should NOT be a factor.", "replies": [], "depth": 1}, {"id": "gnxwi86", "text": "\"I'm a little worried people will assume we'll be unfair in our rent to help our other businesses or something\"\n\nUnless you have a specific business plan and one of the items is *\"definitely be unfair in the rent on this new building*\", I think things will sort themselves out just fine.", "replies": [], "depth": 1}, {"id": "gny4d16", "text": "While it is risky to double or triple down in one location there are some benefits from controlling a significant amount of the retail in a small submarket, particularly if it is a broker driven market.  Obviously you can push rents better, but you might see more diversity of tenants and you might also get better buying power with your contractors.  I would not worry about having tenants compete against each other in existing properties, if you don\u2019t buy it someone else will and their tenant will compete against yours.", "replies": [{"id": "gnyilv7", "text": "Diversity of tenants is something I'm hoping our ownership would help... it really is a tiny town and i've lived here my whole life and acutely felt where it is lacking.", "replies": [], "depth": 2}], "depth": 1}, {"id": "gny57iz", "text": "Do the other business compete with you? \n\nBut might not be the worst to look the next town over, or different sector but same location.", "replies": [], "depth": 1}, {"id": "gnyr3ck", "text": "Good way to to control exclusives and optimize your sales", "replies": [], "depth": 1}, {"id": "go31mk6", "text": "With out knowing what you\u2019re doing, the market you operate in, the other potential tenants, or the specifics of the deal, it doesn\u2019t help to give you feedback.", "replies": [], "depth": 1}]