Western Real Estate Business

MAY 2018

Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.

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www.REBusinessOnline.com Western Real Estate Business • May 2018 • 55 NET LEASE OWNERSHIP STILL POPULAR, DESPITE A CHANGING RETAIL LANDSCAPE New tax laws and a change in the way consumers now interact with many retail businesses might have caused a shift in the net lease gears, but the product type is still just as popular as ever. By Camille Renshaw T oday's innova- tive retail en- vironment has led to significant new commercial real estate trends in California, Oregon, Arizona and other Western U.S. states. The first trend is driven by new fed- eral tax laws. In many cases, property owners can no longer deduct state and municipal taxes as they could in the past, mak- ing ownership in areas of high tax less desirable for net lease investors. California cities and other high- income cities across the country are taking a punch right now due to these tax law changes. Net lease property owners are accustomed to predict- able income over the long term since most expenses are passed on to the net lease tenant. However, the new tax law has changed these expecta- tions, decreasing profits for net lease owners in high-income areas across the Western U.S. As you might expect, Brokers + Engineers is getting a lot of phone calls from net lease owners ask- ing, "How do I get out of this high-tax market and into a market like Florida, Texas, Arizona or another area where I have lower state and local income taxes?" We're getting these requests from all the major Western cities, including Denver, Phoenix, and Los Angeles, San Francisco, San Diego and Carmel, Calif., which all boast very high tax rates. It's not business as usual, and it's taking owners on a quest to jump into states with no income taxes. The firm has also gotten a lot of calls from owners trying to determine whether they should form a Nevada trust — very popular in California — to help reconfigure their tax burdens, which can be hefty, particularly upon the sale of an asset. A second trend in the Western U.S. involves retail banks reviewing their underlying real estate and determin- ing if they want to be in it for the long haul. We work with a lot of local and regional banks out West. Those that haven't already been gobbled up by a Bank of America or one of the Big Four banks are asking, "Do we want to own our own real estate or not?" If these banks do want to own their own real estate, they then have to de- termine if they'll want to be in these retail locations for the next five, seven or 10 years. Most retail banks we're talking to are not thinking ahead to 15 or 20 years from now. They're as- sumptive that retail banks will use real estate in wildly different ways in 10 years. This is mostly due to e- commerce, online deposits and other changes to the traditional banking business. Regardless, the underlying real es- tate will remain very desirable in most cases due to the high-traffic metrics associated with these parcels. In fact, outparcels are becoming one of the most desirable types of real estate. New REITs and funds are forming to focus only on outparcels as they have the ability to create a diverse portfolio in terms of credit, use type and geog- raphy at a lower investment cost. Sin- gle-tenant parcels are easy to under- write due to the singular credit and lease term natures associated with the investment. As markets shift over time, a single-tenant asset can gener- ally shift usage easily, as the owner is only looking for one new tenant and corresponding usage. Replacement usage for previous bank locations includes urgent care fa- cilities, athletic facilities, quick-service restaurants and pharmacies. If you've got great underlying real estate with high traffic counts, then the location will always be desirable to the next hot retail concept. Camille Renshaw, Founder and CEO, Brokers+Engineers Renshaw New REITs and funds are forming to focus only on outparcels as they have the ability to create a diverse portfolio in terms of credit, use type and geography at a lower investment cost. Replacement usage for previous net-lease bank locations includes urgent care facilities, athletic facilities, quick-service restaurants and pharmacies like Fred's (pictured above). Commercial Real Estate Loans $$$ (since 1989) For Re-Financing or Purchase From: $500K to $100M Fast Bridge Loans Also Available Loans Available Nation Wide (714) 258-0177 Visit us on the web at: www.CapitalEquity.com E-Mail: GoCapitalEquity@aol.com Ca Bre Lic # 01147688 • Apartment Buildings • Shopping Centers • Industrial Buildings • Mobile Home Parks • Self Storage Facilities • Hotel/Motel RATES AS LOW AS 4.5%

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