What could be considered a risk of high Capital Expenditures?

High capital expenditures (CapEx) refer to substantial investments in property or infrastructure meant to improve or maintain the long-term value of an asset. While these expenditures can eventually lead to improved property value and tenant satisfaction, they also present immediate financial risks.

The potential cash flow drain is a significant risk because high CapEx requires a considerable upfront outlay, which can limit the cash available for operational expenses or to distribute among stakeholders. The cash outflow does not immediately translate into incoming revenue, and if not managed properly, it can lead to negative impacts on liquidity and overall financial health. As properties undergo upgrades or repairs, the cost can exceed expected budgets, further straining cash flow and resources.

In contrast to other options, increased property equity, higher fixed costs, and enhanced tenant satisfaction primarily represent potential positive outcomes or changes that might result from capital expenditures. Increased property equity comes from improved property values, higher fixed costs can arise from maintaining or servicing new infrastructure but do not directly indicate risk, and enhanced tenant satisfaction typically occurs due to improvements but doesn't address immediate financial risks. Thus, potential cash flow drain stands out as a critical risk associated with high CapEx.