LAS VEGAS-Camille Renshaw, a director in the New York City office of Stan Johnson Co., discusses the institutional approach to the single-tenant net lease market as it is shaping up in her neck of the woods. In this exclusive interview at RECon 2014, she discusses who's going after the stabilized “good-credit” plays and who's going a bit farther out on the risk scale for value-add assets.
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Q: What are you seeing in terms of institutions' approach to the single-tenant market?
A: Institutions are very active right now. I would say you have multiple tiers of them. You've got the single-tenant players, the ARCs and the WP Careys of the world. They're doing what they've always done best, they're buying assets with a lot of term on them and good credit. WP for example really likes sale/leasebacks and they're buying at cap rates where they can provide a great return dividend to their shareholders. I would say the second tranche is the added-value player, and they're the ones who are probably making the big impact on the single-tenant market right now. They're buying portfolios with perhaps some broken assets. They'll buy 10 deals and a lot of them will have vacancy on them. They'll rip out the ones that are stable or have longer terms, and we'll sell those right away for them at the height of their value. And as they get great tenants for the rest, we'll consult with them, take them to market and sell them. They get terrific returns doing that.
(See the full video interview at the end of this story.)
Q: What's the outlook for the New York market?
A: It's really active. We have a lot of people who've made money in the last couple of years as the market has recovered. So they have exchanges to do. Our exchange market is frantic with the timing of everyone trying to protect their capital gain. We've got very compressed cap rates, in fact historically low cap rates, and guys are being very smart about the properties they're buying. But I guess the big news, and we've heard it a lot here at ICSC, is that leasing is up nationwide, and that's great for the single-tenant market.
Q: So what are you seeing generally for the market, nationally?
A: Nationally over the next year we're probably going to see interest rates go up maybe 50 bps, which percentage-wise is huge compared to where we are now. But I don't know if it will have a big impact on the market. In that sub-$10-million space the exchanges are so active that institutions are still going to struggle to compete, and cap rates will remain historically low. Above $10 million, that 50 bps may move the needle slightly. But we're going to see more and more leasing. I hope we continue to see job growth, some real job growth, across the country. And as long as those things are happening, not a lot is going to change in our sector. We've got a lot of folks with more capital to spend, and more demand than we have supply. It will all keep things compressed. It's a great market right now.
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John Salustri
John Salustri has covered the commercial real estate industry for nearly 25 years. He was the founding editor of GlobeSt.com, and is a four-time recipient of the Excellence in Journalism award from the National Association of Real Estate Editors.
