Luther: The year ended with 14 producers/brokers in the group. There is a total of 28 people within NNLG, including resource staff, with more team members being announced in the coming weeks and months. We do not want to be the largest team, nor do we want to grow with individuals who don't see the value in a collaborative and open platform. We've sold in excess of $500 million in property for 2016, more than 130 properties, with the trailing 12-month figure being higher. Year-to-date in 2017, we've already sold 44 properties, so we're off to another strong year. By asset type, we had the largest concentration in restaurant sales, followed by drugstores, dollar stores and then automotive. On the net-lease industry size as a whole, the quote I'm getting is $10 billion to $11 billion, which includes office/industrial. NNLG will be ranked as a top net-lease team in the country.

The emphasis has been on a traditional base of business, which is merchant developer and portfolio owners, public and private. The other segment of our business involves more complex assignments, including handling more product that is troubled—either the retailer is oversized and looking to divest or the owner or retailer is doing a sale leaseback. Otherwise, we're selling a lot of vacant stores and excess property including Walgreens, Seritage (a REIT that owns Sears boxes) and Walmart. We're looking to find a tenant replacement for these retailers and/or disposing to a developer. We've also grown the corporate-account and retailer-services businesses. Most REITs are selling underperforming restaurant brands or concepts that have been a little more tired. Newer concepts are eroding older bellwether brands. As for unit volumes, sales are decreasing for once-blue-chip bellwether brands; investors are getting out of them and into newer concepts.

Mousavi: SRS is deeply connected with the retailer, and we know the rents they're willing to pay, and what markets they'd like to expand in—not now, but in three to five years and beyond. We represent many of them and are leading their growth or helping them downsize. We have a substantial presence now in California, where the NNLG platform is based, and we also have NNLG brokers in Denver, Dallas, Chicago and Atlanta and are expanding into other markets as well with strategic hires. All databases and buyer leads are centrally located and pooled together amongst all brokers in NNLG nationally. We meet weekly about the pipeline, we discuss all proposals with all brokers, and deal-match buyer and seller requirements internally. Everything is open to the entire company. I don't know of any group of our size that does that on a cohesive, deliberate basis.

The key for us is not hiring 1,000 agents; we want to hire selectively, hiring the right people in the right markets and doing high volume. To do our volume, you need heavy resources and efficient and streamlined execution combined with the right culture. On the underwriting side, when we need market data, when we're valuing an asset, we need to know what the building will lease for and intimate knowledge of the market, which will impact all aspects of that assignment. You need to know what tenants are doing in retail—it's entirely driven by the retailer and where they're going, where they want to be and the economics. SRS has equipped us with that tenant intelligence.

GlobeSt.com: What has the net-lease market done during that time period?

Mousavi: The market has evolved considerably over the course of the past 12 months. The cost of capital and the 10-year Treasury are up after the election; there has been more inventory come to market and overpriced property is taking longer to move or sitting at current asking prices. Buyers are cautiously optimistic, and the exchange buyers continue to move quickly and aggressively on well-located, appropriately priced assets. Pricing has held for core product and creditworthy net-lease property. Pricing is critical as we have entered this new phase of the market cycle. It may take longer, and as a seller, you have to factor that into the execution of an assignment. A lot of the disconnect in pricing is supply driven, particularly with overpriced B and C product coming to market on a national basis. When we're still transacting core net-lease property in the 4% cap rate range, or sub 4.00% in Southern California, I still deem this a highly active market.

Luther: There are takeaways. The numbers in 2016 for overall net lease were down by double digits: 10% to 20%. We filled that gap by hiring more people. While the volume is not reflective of the overall market, the market has certainly slowed as a result of values having been maximized and the market being fully priced. If not event-driven (such as a 1031 exchange or a tenant going bankrupt), they're on the fence or not transacting. There was plenty of supply, just fewer transactions. While we're still hitting pricing on individual sales, it's taking longer.

There's a flight to quality in top MSAs, but pricing is extremely tight and supply is limited in that segment of the market. Many sellers are seeing offers where pricing is lower than expectations based on past sales. It's a recurring theme: “We're not getting the pricing we were in 2015” is what we're hearing. 2017 won't look like 2008, where we went off a cliff, but it's slower moving. I don't see a double-digit downswing from last year. Last year we had seven or eight offers on a property, but now it could be half of that. Product is taking longer to move and there are fewer bids if there is not a sound pricing and marketing strategy in place. The market would catch up to you in the past if you waited a quarter or two, but we are no longer in that type of market.

Properties also are trading hands among brokers. The first broker in overprices an asset and wears the seller out or it's the “old trick” which we steer away from: get an asset listed and over-promise, beat up the seller and then ask for a reduction. The second broker in is getting paid, and first guy is getting a listing. This is where our pricing and marketing strategy and pricing discipline are assisting our clients. We are increasing our volume quarter after quarter, even with the issues in the marketplace, due in large part to our shared databases, team approach to cross-selling and deal matching and our unrivaled network of leasing and tenant rep brokers in most major markets in the country.

GlobeSt.com: How do you see the future of the market and of the NNLG?

Mousavi: SRS's New York and San Francisco offices are well-staffed, but we need to grow our NNLG presence there, and we're entertaining those conversations now. For us as a company going forward, we plan to further leverage our strengths through tenant relationships. When we represent a tenant and bring them to an owner/developer, we have exceptional leverage there, because they wouldn't have the tenant without the hard work put forth by SRS. Now that we have this platform within SRS that has those capabilities, the depth of tenant relationships, and more than $800 million on the market or under contract, we are better positioned than ever to serve our clients as we move into a shifting marketplace. Last week, NNLG closed a $102-million AT&T tenant deal in New Jersey. We wouldn't have had that distribution if not for the national presence of SRS, but we still remain as nimble as a singular platform. We will go where our clients go on the developer and REIT side, but also more on the corporate-services side, (e.g., Walgreens). Retailers are downsizing in some areas and experiencing tremendous growth in others—effectively and efficiently utilizing their properties is becoming more important to the retailer. This includes sales, excess site dispositions, downsizing and re-tenanting—all driven through SRS. As retailers downsize, close, sell and buy, we want to leverage our contacts to help facilitate those transactions. There's still a subset of owners, developers, and retailers that have to transact, regardless of market conditions, and this makes up a large portion of our client base.

Luther: Our three areas of growth focus for boots on the ground are San Francisco, New York and Dallas. In Texas, you have the ease of ability to permit there and develop; it's a high-growth market. It's also a core market for SRS with a highly skilled base of tenant-rep and project-leasing brokers. New York is a center for capital and home to many REITs, funds and institutional investors. Expanding the NNLG presence in our office in New York is something we are intent on completing.

GlobeSt.com: What are your predictions and plans for ICSC RECon in May?

Mousavi: This is a major show for us, for obvious reasons. It's important to differentiate ourselves from our competition. We've done a substantial amount of business in a short period of time, and we want to talk about why and how we did that. Trump did give us a boost; it's still positive out there and retail has an exceptionally wide buyer pool. There are some changes taking place that make investors nervous, but it's still positive overall. Certain tenants are booming and others are dying while e-commerce is fundamentally changing the way consumers behave.

Also in May, we move into our new office on the 15^th floor of our current building in Fashion Island in Newport Beach, CA. It's a deal that triples the square footage of our office which will be the base of all NNLG operations. It's a major investment in what we see as a critical service for the industry and for SRS as a national retail real estate services firm. It's a 21^st-Century approach to an old-school business, and we're very excited about where we are headed as a company.

Luther: Everyone will be in attendance at ICSC, and many will want to know where we are and where we're going. The booth positioning helps; it's larger than what we're used to having. Having the energy and activity generated from the tenant reps and leasing brokers provides for synergy within service lines inside of SRS. Last year, our clients had multiple meetings inside the SRS booth meeting with tenant reps from various markets, as well as NNLG. We don't have to travel inside the convention as we did in years past, so we're in the booth more frequently. It becomes an effective marketplace with a tremendous amount of action. We're getting away from the large, apparel-oriented big boxes to restaurant and experiences and daily needs. Our growth is hinged on responding to what the need is in the market—responding to change and problem solving.

Hear the latest on Net Lease at RealShare's event on April 5-6 in New York City at the Essex House. Learn more here.

NEWPORT BEACH, CA—A combination of technology and strong, long-standing relationships is needed to stand out in the retail net-lease sector and compete against larger and less-nimble firms, SRS Real Estate National Net Lease Group's managing principals Matthew Mousavi and Patrick Luther tell GlobeSt.com The group is celebrating its one-year anniversary with the firm, so GlobeSt.com spoke with Mousavi and Luther about the progress they have seen with the group over the past year, trends in the net-lease sector and expectations for the upcoming ICSC RECon in Las Vegas.

GlobeSt.com: What progress have you seen with the NNLG over the past 12 months?

Mousavi: SRS is a 30-year old company and the largest retail-only services firm in North America. Historically, SRS has been heavily concentrated on tenant representation and leasing. The firm has “boots on the ground” in most major markets. NNLG, as an investment sales-only team of brokers, handles all net-lease transactions for the firm nationwide under one platform, working in conjunction with the local offices and their respective brokers. We have complete integration and cooperation between offices and brokers. No other firm is set up that way. Several companies service multiple product types, and have competing net lease teams in each office. For SRS NNLG, it's only retail, only net-lease investment sales, and only one team handling all net-lease sales nationally. We are highly focused, but differ from boutique firms with limited resources and no market presence in major MSAs throughout the country and differ from one of several inner-company teams within a larger firm.

SRS is a long-established, highly respected international brokerage company with tenant and owner/developer relationships that span decades. This is incredibly valuable to our clients and to our team, and has contributed to our success since joining SRS. Retail is driven by the tenants, and as we enter into a new phase of the evolution of retail, and retail property, having direct access to tenant intelligence real-time and in every market has been a substantial value-add to our business and to that of our clients.

Luther: The year ended with 14 producers/brokers in the group. There is a total of 28 people within NNLG, including resource staff, with more team members being announced in the coming weeks and months. We do not want to be the largest team, nor do we want to grow with individuals who don't see the value in a collaborative and open platform. We've sold in excess of $500 million in property for 2016, more than 130 properties, with the trailing 12-month figure being higher. Year-to-date in 2017, we've already sold 44 properties, so we're off to another strong year. By asset type, we had the largest concentration in restaurant sales, followed by drugstores, dollar stores and then automotive. On the net-lease industry size as a whole, the quote I'm getting is $10 billion to $11 billion, which includes office/industrial. NNLG will be ranked as a top net-lease team in the country.

The emphasis has been on a traditional base of business, which is merchant developer and portfolio owners, public and private. The other segment of our business involves more complex assignments, including handling more product that is troubled—either the retailer is oversized and looking to divest or the owner or retailer is doing a sale leaseback. Otherwise, we're selling a lot of vacant stores and excess property including Walgreens, Seritage (a REIT that owns Sears boxes) and Walmart. We're looking to find a tenant replacement for these retailers and/or disposing to a developer. We've also grown the corporate-account and retailer-services businesses. Most REITs are selling underperforming restaurant brands or concepts that have been a little more tired. Newer concepts are eroding older bellwether brands. As for unit volumes, sales are decreasing for once-blue-chip bellwether brands; investors are getting out of them and into newer concepts.

Mousavi: SRS is deeply connected with the retailer, and we know the rents they're willing to pay, and what markets they'd like to expand in—not now, but in three to five years and beyond. We represent many of them and are leading their growth or helping them downsize. We have a substantial presence now in California, where the NNLG platform is based, and we also have NNLG brokers in Denver, Dallas, Chicago and Atlanta and are expanding into other markets as well with strategic hires. All databases and buyer leads are centrally located and pooled together amongst all brokers in NNLG nationally. We meet weekly about the pipeline, we discuss all proposals with all brokers, and deal-match buyer and seller requirements internally. Everything is open to the entire company. I don't know of any group of our size that does that on a cohesive, deliberate basis.

The key for us is not hiring 1,000 agents; we want to hire selectively, hiring the right people in the right markets and doing high volume. To do our volume, you need heavy resources and efficient and streamlined execution combined with the right culture. On the underwriting side, when we need market data, when we're valuing an asset, we need to know what the building will lease for and intimate knowledge of the market, which will impact all aspects of that assignment. You need to know what tenants are doing in retail—it's entirely driven by the retailer and where they're going, where they want to be and the economics. SRS has equipped us with that tenant intelligence.