Which Net Lease Assets Are Selling Like Hotcakes?

By Globe St | March 1, 2018

CORONA DEL MAR, CA—Single-tenant retail assets priced $5 million or less continue to sell with the most velocity due to having the largest audience of prospective investors and all-cash buyers that are less dependent upon financing, Hanley Investment Group EVP Bill Asher tells GlobeSt.com. In addition, he says grocery-anchored shopping centers with reported successful sales and a complementary mix of Internet-resistant retailers will continue to be in high demand and command top-of-the-market pricing.

“In 2017, we saw sellers continue to push the market with aggressive pricing on the marketing and sale of single-tenant retail, especially coming off peak market pricing in 2016 driven by record-low interest rates and investor demand,” says Asher.

He adds that overall activity and buyer interest decreased, with buyers proceeding with more caution in previous years. This created larger spreads between where a property was listed for sale, what range buyers submitted offers and final closing prices. “Watch for brokers to strategize with sellers in more depth in 2018 in properly adjusted pricing to better meet the transitioning market on all retail product types to more efficiently and effectively consummate sales this year.”

Another development that was pleasing to the net-lease sector was where 1031 exchanges wound up in the new tax plan. “We were pleased when the 1031 exchange was left alone in the tax bill, and that activity will continue to support our business as long as it remains intact,” says Adam Scherr, an advisor with Sands Investment Group. However, he tells us there is some concern with interest rates rising since the end of last year and a lag time between rise in cap rates and interest rate.

Still, the net-lease investment market is seeing increased velocity and deal flow on a national basis, Kyle Gulock, senior managing director of Charles Dunn Co. Inc., tells us. “The main drivers for this are a strong economy, job growth and overall consumer confidence. This has led to increased deal flow across all sectors of the real estate industry, which has created an expanding buyer pool of 1031-exchange buyers.” Gulock says that 82% of the net-lease transactions his group completed in 2017 involved a 1031-exchange buyer from California.

With a market that appears to be trending toward a more consistent, higher-interest-rate environment, net-lease investors should be paying more attention to their strategies with existing properties they own and properties that they are looking to acquire, says John Read, first VP with CBRE’s National Retail Partners—West team. “Interest rates and cap rates remain near historical lows, and it makes sense to sell, buy and/or refinance. If investors are not doing one or all of these in today’s market, they might be missing an opportunity.”