Three Ways to Monetize a Water Feature

Posted in OTL Newsletter, News -

We all know that water features can add tremendous value to commercial spaces by contributing aesthetic appeal and attracting tenants, guests, and visitors from miles around.

Yet the benefits don’t stop there—property owners can also generate measurable income year after year by monetizing these water features. Additional income generators like rental rate premiums, naming rights, and special events can provide significant cash flow for landlords. Some of these programs can also help with marketing efforts and driving foot traffic to commercial spaces.

Let’s look at a hypothetical case study that illustrates this point.

A show fountain that costs an owner $5 million to install would require $220,000 of NOI to produce a 10% return on that investment with a depreciation of 25 years. That fountain could easily draw an incremental 100 guests daily to experience the shows. At an average spending estimate of $100 per person per day, that would collectively produce $3.65 million in annual sales. Assuming that one-third of those dollars go to tenants paying a 6% percentage rental, then $73,000 of additional percentage rental would be produced.

Further, assuming an average rental rate premium of $16 per square foot from tenants who want to be located near the fountain, the water feature would also bring in as much as $112,000 in additional annual income. Naming rights at $8,000 per month could generate $96,000 per year, and just one event—birthday party, wedding, meeting—per month at $5,000 per event could deliver an extra $60,000 per year.

All told, the additional annual revenue generated by the fountain would total $341,000—well beyond that 10% return. Also, at a 5% cap rate, the increase in real estate value from the fountain would be $6.82 million—significantly above the initial investment for the water feature.

 

Annual NOI and Value Gain from a Water Feature
  Expenditures Revenue
Initial investment $5M  
Additional rent percentage from tenants located near fountain   $112,000
Naming rights fees collected   96,000
Rent percentage from additional 100 guests/day   73,000
Event revenue – one event per month   60,000
Total additional annual revenue   $341,000
Increase in property value at 5% cap rate   $ 6.82M

 

In addition, as the common area of a property comprises a substantial portion of that space, this area can and should be generating revenue.

Installing water features at commercial spaces creates an extraordinary guest experience and a unique environment that becomes a focal point, differentiates the property, and provides its own return on investment. By implementing additional ways to monetize these amenities, landlords can augment their income stream and property value for years to come.