The net lease sector of retail real estate has been much talked about as a stable place for commercial real estate invesments. Stan Johnson Co. sees a large share of those deals take place. Gill Warner, senior director of investment sales at the firm, recently spoke with GlobeSt.com about the trends he is seeing in the space. He talked about trends in deal flow, tenant expansions and what geographic areas are performing welll.
GlobeSt.com: How is net lease retail faring compared with other property sectors?
Gill Warner: It’s faring pretty well. There’s obviously a shift in deal size. The quantity of properties that are trading are about the same, but the volume is significantly lower because you were working on a $5-million Walgreen average, and now you’re trading a lot of Dollar Generals at $1 million. You might have the same amount of transactions going on, but overall volume might be down. We sell what’s being built, and a lot of that is smaller, like the Dollar Generals, tire stores, auto-part dealers. We were selling the Lowe’s, the Walmarts, and none of that is being built, so there’s not much of it training.
GlobeSt.com: Even though the deals are smaller, what is the competition like in the process?
Warner: With a 15-year lease, true triple net and investment grade, there’s a lot of competition and a lot of people trying to buy them. The cap rates are way down in the last 60 days.
GlobeSt.com: Are you seeing the types of buyers changing?
Warner: We’re seeing new buyers, people who are getting 1% on a money market that aren’t satisfied with that and want a 6% to 8% return. We’re seeing individuals and corporations coming in that have $50 million and have never been in real estate and are looking for assets to buy.
GlobeSt.com: With the added competition do you see net lease retail overheating?
Warner: It’s going to be hot for a while. Apartments got down to four caps, and we’re still at an average of seven, so we’ve got a little ways to go.
GlobeSt.com: Besides Dollar General, are there any other retailers that are driving a lot of transaction activity?
Warner: Hobby Lobby is one that’s jumped out there. Grocery has done a lot of expansion, such as Whole Foods.
GlobeSt.com: Are there any regions of the country that seem to be performing better than others?
Warner: It seems like the Northeast, between Tractor Supply Company and other tenants expanding, it’s a hot region for new development. It’s probably based on tenant demand, and it was about time for that region to have some new development.
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