Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.
Issue link: https://westernrealestatebusiness.epubxp.com/i/566807
54 • September 2015 • Western Real Estate Business www.REBusinessOnline.com the equation in the STNL game, it also boils down to the tenant and its abil- ity to operate successfully within that community that will decide the fate of a property in the short term. "I think buyers are looking closely at other markets because they are more favorable for the tenant, where the cost of living and rents may be lower than in California," he says. "With cap rates so low and rents so high in this state, investors believe retailers can do better in other markets where there is simply more discretionary income available." Investors know that discretionary income can easily trickle down to not just the grocery anchors, but the co- tenants as well. This is especially true for salons and quick-service restau- rants (QSR), as Hatch notes. "High-end beauty services, fast- casual and fast-food dining spaces, dental chains, banks and mattress companies are tenanting the grocery- anchored centers," he says. "For ex- ample, Bronco Burgers — a 13-store franchisee for Wendy's in Boise, Idaho — recently put a Wendy's out to the market for a sale-leaseback opportu- nity. There were 37 ofers in the frst 48 hours of marketing. When you have the right type of asset like that at the right time, it brings an infux of buyers." DJM Capital Partners is one frm that sees opportunities beyond the Golden State. Though the private eq- uity real estate and development frm is based in San Jose, Calif., and main- tains assets throughout the state, its latest STNL fund hopes to capitalize on opportunities throughout the West Coast, Texas, Sunbelt and New Eng- land. DJM recently closed its initial round of funding for the $200 million Single Tenant Net Lease Fund, which will focus on the acquisition of underper- forming or improperly capitalized assets. This will include multiple- property portfolios in premier, high- barrier-to-entry markets that can be transformed from value-add to core and core-plus holdings. "Some sellers are looking for new, longer-term STNL assets," says Rob- ert Brown, senior vice president of acquisitions for DJM Capital Partners. "But with cap rates so low in the West, many are electing to pay their taxes and not trade...or they are looking for deals in less competitive markets. Some of the private, non-traded REITs will also be sellers going forward, as they look to focus their holdings on their core investment category." Brown notes that he, too, is bullish on the QSR indus- try as he's watched new burger con- cepts like Five Guys and Smashburger expand, while Chi- potle, Bufalo Wild Wings and Panera Bread have re- mained active. Brown is also moni- toring higher-end and specialty retailers, including Ulta Cosmetics, Tesla Motors, Mattress Firm, and Midwest-based consumer electronics and home appliances com- pany HH Gregg, which he says are all on the move. He is cautious to point out, however, that a company in ex- pansion mode alone does not a good deal make. "It's a seller's market across just about every asset class, with the avail- ability of low interest debt and plenty of liquidity seeking yield," he points out. "That said, the pricing of the net lease properties we buy is not about that at all. We look for a disconnect between value, lease term and seller sophistication as our primary drivers in this particular segment of the com- mercial real estate market." Opening a fund to acquire STNL as- sets while others — even REITs, by his own admission — are selling to take advantage of the favorable environ- ment, does not worry Brown. Nor does the talk surrounding interest rate hikes or a bubble burst that some would argue is fueling this sell-of, both in and out of California. "The 'bubble' conversation is cer- tainly relevant in valuations around fortress assets like core ofce, retail and residential," he says. "Are we back to 2007 with CMBS debt and overleverage dominating the market? The U.S. economy has not fully recov- ered, and interest rates will remain low for at least a year. I don't think we are close to a big sell-of and reces- sion." n Brown Also in development by DJM is Lido Marina Village, which will contain 116,000 square feet of boutique retail, restaurant and creative offce space at the entrance to Lido Isle in Newport Beach, Calif. Santa Monica-based Sands has been active in the Midwest lately, where it recently listed a single tenant net lease Walgreens just 3 miles north of Downtown Indianapolis. Buy…Commission Sell…Commission KZ Companies, LLC 18818 Teller Avenue Suite 100 Irvine, CA 92612 www.kzcompanies.com KZ is Aggressively Seeking New Store Operators to Roll Out its Newly Formed $100 Million Dollar Franchise Development Fund QSR BROKERS CALLING ALL NET LEASED QSR BROKERS CALLING ALL NET LEASED QSR BROKERS CALLING ALL NET LEASED QSR BROKERS CALLING ALL NET LEASED QSR BROKERS