NORTHBROOK, IL—Location has always been considered the most important factor in commercial real estate. But top-flight, single-tenant net-lease properties have become so scarce that some investors in that sector have begun looking outside the core markets in their hunt for deals.
The Boulder Group, a net-leased investment brokerage firm specializing in single-tenant assets, has, for example, completed the sales of a single-tenant McDonald's ground-lease located at the intersection of Wabash Ave. and Archer Elevator Rd. in Springfield, Illinois for $978,260, and a single-tenant Aaron's property located at 1418 East 4th Ave. in Hutchinson, Kansas for $1,241,000.
“While the majority of single-tenant investment activity is focused on core markets, we are starting to see investors focus primarily on the quality of the tenant rather than the top tier locations,” says Randy Blankstein, president of the suburban Northbrook-based Boulder Group.
Aside from the power of the brand name, and the wealth of the storied company behind it, the value of the purchased McDonald's, constructed just this year, stems from its new twenty-year lease with rental escalations throughout the term. Blankstein and Jimmy Goodman of Boulder represented the purchaser in the transaction; a wealthy individual based on the East Coast. The seller was an Illinois-based developer.
“The market for McDonald's ground leases remains active as investors are attracted to investment grade tenanted properties with long term leases under $2 million dollars,” says Blankstein. “The lack of newly developed single tenant properties has caused cap rates to decrease for assets similar to this particular McDonald's transaction.”
"Overall property supply across the entire net lease sector decreased by more than 17% from the fourth quarter of 2012 to the first quarter of 2013," according to an April research report published by Boulder. And although the firm's second quarter report showed that this trend reversed, with the overall supply increasing 14%, much of that was not due to new construction, but from owners adding vintage buildings to the market or cutting shopping centers into single-tenant parcels.
The Hutchinson Aaron's fully occupies a 7,200-square-foot retail building that was developed in 2011. The lease was corporately guaranteed by Aaron's Inc., an investment grade rated company with a NAIC 2 rating. Hutchinson is the largest city within Reno County and serves as a retail trade destination for surrounding cities. Aaron's Inc. leases the property on a net-lease basis with about thirteen years remaining. The lease features 7.5% rental escalations every five years.
“The market for net-leased properties like this Aaron's remains strong as investors are attracted to long-term leases with rental escalations to investment grade tenants,” adds Blankstein.
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
