NEW YORK CITY-In what has been an extraordinarily busy year for the industry; the one thing that has stood out is the incredible interest shown by real estate investors in buying or master leasing the retail portion of office and residential buildings.

Due to the tremendous increase in value of the retail space, a large number of properties have undergone conversions to create two and three unit condominiums resulting in retail that can be marketed to investors. To that end, we have seen street level stores, portions of the cellar and sometimes the second floor of buildings being sold for cap rates as low as 3.5%. The expectation is that the continued strength of the New York City economy will cause the rents to grow at rates that are in excess of increases in the consumer price index.

Of course, there are risks to investors. The obvious one—but also one that recent trends show has dramatically decreased - is the sudden, dramatic change in the local and national economy. Notwithstanding the City's dependence on financial institutions that were the cause of the global recession from 2008-2011, the City's economy bounced back faster and stronger than anywhere else in the country and probably the world. Of course, a risk to investors is the City's need for revenue, which has caused (and will continue to cause) real estate taxes to escalate; most, if not all, of that risk is shouldered by the tenants. Therefore, as long as New York is the place to be, retail rents and reimbursement of expenses by tenants, will continue, thereby reducing the risk to investors.

The one area of ongoing concern might be zoning legislation that limits the use of the ground floor, which is intended to maintain the character of neighborhoods. The problem with the legislation is that the small local merchant, although pleasing to the community, is unable to produce the revenue through real estate taxes, which is critical to Mayor-elect DeBlasio and is the only tax that can be raised without legislation from Albany. Moreover, frequently the national and international tenants leasing the retail space have more employees, who are paid significantly more than minimum wage, further benefiting the community.

Investors in retail are also becoming very inventive in increasing the value of their holdings and their return on investment. In a number of instances, they have also purchased the second floor encompassing a residential component to expand their stores to obtain a more dramatic street presence. The economics of purchasing the second floor is based on the value of ground floor retail which is significantly more valuable than second floor residential or office space.  Purchasing the second floor and adding it to the first floor, even though it frequently involves expensive and time consuming construction is one of those instances where one and one add up to five. The ability to find creative ways to leverage the original investment also demonstrates why there is so much interest in retail in New York City.

Stuart Saft is a partner at Holland & Knight. The views expressed in this column are the author's own.