INDIANAPOLIS—As reported in GlobeSt.com last week, GPI Theatre Properties I has just sold a 51,000-square-foot cinema multiplex in Indianapolis, IN to a New York-based investor for $9 million, and JLL officials say it's a perfect example of the increased interest from coastal buyers in the nation's secondary cities. These investors, many of whom are increasingly priced out of coastal markets like New York, Los Angeles, San Francisco and other core markets like Chicago, can now find the yields they need in these secondary regions.
“We've been expecting and waiting for this,” Rebecca Wells, an executive vice president in JLL's Indianapolis, IN office who helped complete the sale, tells GlobeSt.com. “And it did start happening about one year ago.”
Like many of the buyers hunting for deals in the secondary markets, the new owner of the Regal Cinemas Galaxy 14 multiplex in Indianapolis, the Great Neck, NY-based One Liberty Properties, Inc., focuses on the single tenant net lease market. And these buyers sometimes have to settle for cap rates below 5.0% when they invest in a core city. Typically, however, a similar property in a secondary city like Indianapolis or Nashville, among many others, will provide a cap rate roughly 200 bps to 300 bps higher, Wells says.
“In the past 18 to 24 months, lenders opened up,” she adds, and let it be known that properties in the smaller cities were desirable, and that has allowed investors to come in. CMBS lenders, in particular, have said they were ready to go into the Indiana region.
“Investors also like it because it's not as risky,” she adds. “We have very stable growth, unlike the core areas where you can see a lot of ups and downs.” And that means in a city like Indianapolis, buyers can plan out with far greater confidence when they will sell off a newly-acquired property.
Furthermore, in the case of One Liberty's purchase of the Regal cinema, it “was able to get a $2 billion company on the lease,” Wells says, a move with very little risk, “but a nice premium on the return.”
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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.
