“You can’t negotiate fact”
CALABASAS, CA—Getting more from the same or smaller space is a top priority for retailers in the net lease space this year, although how they achieve that objective varies from company to company. Some are looking at scaled-down floor plans, some are making moves that lead to store closings and a few others, notably in the dollar-store segment, have their eye on expansion. What’s true across the board is that best-in-class assets are much sought-after by investors, says a report from Marcus & Millichap’s National Retail Group.
“Quality net-leased listings will remain in high demand throughout the year, while rising interest rates could begin to dull investors’ appetite at the bottom of the market,” according to the report. The perceived safety of many net-leased assets has encouraged retiring Baby Boomers “to exchange out of management-intensive apartment properties and into net-leased assets secured under long-term leases.”
Accordingly, cap rates for the best of the best in net lease have moved very little in the past several months. On the other hand, the report notes, “Properties with less-creditworthy tenants, meanwhile, could have fewer buyers as rising interest rates expand options for investors seeking elevated returns and the cost of SBA loans increases.”
Even with the specter of higher rates, though, certainly the capital is far easier to come by. “The availability of debt expanded last year and should rise in 2014,” writes William Hughes, SVP withMarcus & Millichap Capital Corp. “For institutional-grade assets, CMBS remains a viable option for investors. Last year, CMBS accounted for nearly half of the retail dollar volume, up from just 8% in 2008.”
Although a large share of that activity came from multi-tenant deals, the report notes that net-leased properties can still utilize CMBS. Menawhile, “Local and regional banks have cut into market share from national banks, with each representing 11% of retail dollar volume.”
Within the universe of net-leased retailers, yields and cap rates vary both by store type and within those categories. In quick-service restaurants, for example, “A McDonald’s ground lease will garner attention at first-year returns in the low-4% range, while corporate-backed chains trade at cap rates beginning in the low-5% area and drifting up to the low-6% range,” according to the NRG report.
For another class of net-lease restaurants, those in the casual dining sector, “Cap rates vary widely in the casual dining segment based on tenant and lease terms,” the report states. While corporate-owned properties can change hands in the low-6% range, those occupied by franchisees typically trade at first-year returns that are about 150 basis points higher.
The belle of the ball at the moment is dollar stores, which notably are more bullish on expanding than other retail sectors. “Family Dollar, Dollar General and Dollar Tree will open approximately 1,200 new locations in 2014,” says NRG’s report. More than 500 of those planned openings will come courtesy of Dollar General.
Deal flow for dollar stores rose by 56% during the most recent 12-month period as investors chased yield, while the median price for these properties held steady at $119 per square foot. In the near term, says the NRG report, “Dollar stores will be a primary target for investors this year due to the prevalence of available properties with full-term leases. Additionally, elevated cap rates will make dollar stores a favorite acquisition of REITs and private buyers.”
Join us at the Convene in NYC, where we will be covering the entire national net lease, sales leaseback and 1031 exchange market across the property type. RealShare Net Lease attracts over 400 commercial real estate professionals across the sector – at RealShare NET LEASE on April 1.
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Walter Unger CCIM, CCSS, CCLS
I am a successful Commercial Investment Real Estate Broker in Arizona now for 20 years and I worked with banks and their commercial REO properties for 3 years. I am also a commercial landspecialist in Phoenix and a Landspecialist in Arizona.
WHETHER YOU LEASE OR OWN
NOW IS THE TIME FOR YOU TO EXPAND, UPGRADE OR INVEST.
we are at on the a rise of the cycle in Commercial Real Estate. so there is only one way and it’s called we are going up and now is the time for you to expand, upgrade or invest in Commercial Properties in Phoenix. The prices on deals I may get you will not be around forever.
WAITING TO SELL YOUR LAND ? TIMES CHANGE / IT’S TIME
We barely could give land away the last few years, but times are changing. Even in those meager years, I sold more land across the state than most other brokers. Before the real estate crash I was a land specialist in Arizona with millions of dollars of transactions, but then I had to change and also sell other commercial investment properties, which was fun, but I am a Commercial Landspecialist in Arizonal, a Commercial Land Specialist in Phoenix and love to sell land, one acre to thousands of acres.
If you have any questions about Commercial Investment Properties in Phoenix or Commercial Investment Properties in Arizona, I will gladly sit down with you and share my expertise and my professional opinion in Commercial Properties in Phoenix or Commercial Properties in Arizona with you.Obviously I am also in this to make money, but it could be a win-win situation for all of us.
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Walter Unger CCIM
Associate Broker, West USA Commercial Real Estate Advisers
7077 E. Marilyn Road, Bldg 4, Suite 130
Scottsdale, AZ 85254
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