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CHARLOTTE, NC-Locally based holding company Wachovia Corp. recently purchased 16 properties leased by Walgreen Co. in eight states for $85 million-plus from the privately held Chicago-based Equity Capital Management LLC. The assets are located in the Midwest and Southwest regions of the US.
All the properties are leased on a long-term basis to Walgreens and consist of stores in Georgia, Illinois, Iowa and Texas, as well as five locations in Kansas and Michigan, three stores in Missouri and three stores in Ohio.
The seller, Equity Capital Management, creates investment funds dedicated to the acquisition of commercial properties leased to national companies under long-term net leases. Properties are expected to generate income during the holding period and are eventually sold with the objective of producing long-term capital gains.
The ECM Income & Growth Fund, for example, was raised to invest nationwide in up to $200 million in real estate assets leased to Walgreen Co. under long-term net leases. The fund was created to acquire up to 40 properties with investment objectives of: maximizing current income distributions to its investors; managing risk in order to preserve, protect, and return investors' capital; and maximizing portfolio growth. Representatives for ECM could not be reached for comment.
Wachovia, with assets totaling $507 billion, describes itself as the fourth largest bank holding company in the US based on assets, and the third largest US full-service brokerage firm based on client assets. The company is a qualified intermediary of 1031 exchanges.
According to Chicago-based Appraisal Research Counselors, there has been a dramatic uptick of the net leased freestanding retail building market and the correlating 1031 exchange market, in part caused by the flight of capital from soft assets to hard. The company concludes, "prices being paid for these assets reflect not only the bricks and mortar but often an enhancement due to the lease terms associated with the tenant."
New York City-based Newmark Capital Group, along with Parsippany, NJ-based Norseman Group, arranged the sale of the properties. Kenneth L. Zakin, senior managing director of Newmark, says though the properties were not on the market, the sale was a privately arranged through a transaction that began in February.
"We are actively sourcing transactions to service our net lease and 1031 exchange clients," Zakin says. He notes that Newmark plans to expand its role in the 1031 exchange market. Zakin and Newmark Associate Jason Behfarin represented Wachovia, while Scott Mannes and Joseph Yiu of Norseman Group represented EMC.
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