Frequently ground leased/net leased assets and retail condos are significantly more valuable when sold separately. While the annual income of the outparcel asset can be nominal in comparison to the overall property, the asset once segregated from the whole portfolio can be valued at 15 to 25 times its annual income. Selling the asset gives property owners the opportunity to significantly pay down their debt obligations and bolster their yields. However, if there is existing debt on an asset and the lending documents do not provide enough flexibility to sell, then the process can become difficult and costly. It is important when encumbering the overall asset with debt to exclude the asset so a potential sale will not be restricted after the debt is in place.

3) The asset has considerable value that is not being reflected in the overall portfolio valuation of the asset.

In many circumstances when acquiring an asset such as a large shopping center or a mixed-use development, the ground leased/net leased assets and retail condos are included as part of the overall sale. Typically a large shopping center or mixed-use development will require a substantially larger management and maintenance component and has more risk in comparison to ground leased/net leased assets and retail condos. Consequently, the ground leased/net leased assets typically sell at more aggressive prices. This provides a lucrative opportunity for an investor to buy the overall asset and spin off the designated outparcels for drastically more than they were purchased for.

What impacts an assets value? There are many factors that impact value, but there are a few factors most evident when underwriting these assets. Most important is location! If an asset is located in a desirable pedestrian friendly area with incredible demographics then the credit of the tenant and remaining lease term are weighted less in the valuation of the asset. The asset's owner knows that there will always be substantial interest in the location, regardless if the tenant leaves (Given rent is at or below market). If the asset is in a good to fair location then the credit of the tenant and the remaining lease term play a much more major role. Assets occupied by investment grade tenants with long term remaining leases will yield the most aggressive pricing. The Holy Grail is a property in an excellent real estate location with a long-term net lease to a credit tenant. When this occurs pricing records are broken.

Once an investor has determined that the sale of multiple outparcel assets is feasible, the next step is to determine the disposition strategy. In my experience, the most profitable strategy is to market and sell the assets individually. This lowers the overall price point and creates increased interest for each asset. This method allows buyers to make an offer on the assets they desire while creating and passing on the assets that are not a good fit for their acquisition threshold. The other strategy is a portfolio sale. This strategy is typically quicker and has less moving parts, but requires a discount on the price of the assets. This discount can be anywhere from 100 to 200 basis points. Ultimately, it depends on the investor's needs and wants as to which strategy better accomplishes the desired goals.

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