The Inland Real Estate Group of Cos. (RECon booth C1027) is one of the more prolific buyers of commercial real estate in the industry, especially when it comes to retail assets. So when the Oak Brook, IL-based firm's management decides to tread into some relatively new territory, it's worth it to take notice. Inland recently started a new fund that targets net-lease assets that have short-term leases. Why? Joe Cosenza, vice chairman and a director at the firm, told us.
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“Inland is still buying community shopping centers, grocery-anchored shopping centers, lifestyle centers, apartments across the country, and long-term net lease properties," Cosenza said. "However, we are now buying for a new fund—net-lease properties that have short-term leases."
Cosenza continued: "Why in the world would Inland be doing that? Well, because you can get a much higher rate of return, in other words, a higher cap rate because those short-term leases appear to be less desirable. And what makes them desirable to Inland is the commercial real estate story that must go along with the short-term lease.
"It means, if I look at a single-tenant retail, industrial, or office property, and it has six years remaining on its lease, not only do I look at the health of the tenant paying me the rent and the health of their business at that location, so I can estimate whether or not they renew, but more importantly, what if they don't renew or go dark? Then I must be convinced that I can re-rent the space at a higher rent to another tenant easily because this dense market has the demand. This is what I call an educated risk reward investment.”
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