IRVINE, CA—Recently there has been a shakeup with retail tenants in all categories. Some are closing stores or downsizing, while others are falling out of favor with today's consumers. With single-tenant properties hotter than ever among a diverse buyer pool, a vacant retail or restaurant pad building may be more of an opportunity than an albatross. Chris DePierro, managing director with property investment advisory firm Faris Lee Investments, tells us why, in this environment, the opportunity to add value is greater than it has been in recent history.
GlobeSt.com: What types of single-tenant properties are being vacated?
Chris DePierro: There are still some vacant Blockbuster Video and Hollywood Video stores being redeveloped and backfilled by a single tenant or converted into multi-tenant buildings with higher rents. Banks fall along the same lines. They may not necessarily be going out of business, they just don't need all the space they did in years past due to online banking alternatives.
Sit down restaurants that have been losing market share and popularity are also closing. It was recently reported that dozens of Coco's and Carrow's restaurants in the Southwest will be shuttered as their new Texas-based owners work to stabilize the company. This will create a terrific opportunity for many active tenants to expand into core markets, such as Orange and Los Angeles Counties, which are typically very difficult to penetrate.
GlobeSt.com: What types of tenants are replacing them?
DePierro: Certain restaurant and QSR concepts are exploding—in a good way. Expanding chains such as Chick-fil-A, Chipotle, Five Guys Burgers, Starbucks, and Coffee Bean & Tea Leaf are actively looking for locations in core, dense in-fill markets. Vacant restaurant buildings are ideal because the entitlements are already in place, which is a critical factor in these markets. Another key component is that they are typically situated on one-acre or more of land and can easily accommodate parking requirements and other value-add opportunities afforded by that amount of space.
As such, developers are taking larger restaurant properties and converting them into multi-tenant space with a drive-thru. In some cases they're adding a second pad building to create a more efficient use of the site, translating to greater NOI. One Faris Lee client is currently doing exactly this. A two-acre site in north LA County with an existing full-service restaurant is scheduled for demolition, with redevelopment plans that include a drive-thru QSR pad and up to two additional pads, which could be single or multi-tenant uses.
GlobeSt.com: How do you advise owners who are thinking about selling a property with a vacant single-tenant pad?
DePierro: Faris Lee's goal is to maximize value for the client via creative and thoughtful consideration of their objectives for the asset. Our ability to evaluate these types of opportunities with a developer's eye is paramount. It enables us to look beyond the obvious and find hidden value in the property. Through our detailed and forward-looking analysis, we can garner a sale price that exceeds the owner's expectations, but also demonstrates present and future value for the buyer. Each asset or portfolio is unique and warrants a marketing strategy based on the goals of the ownership. This includes visually communicating the potential for the property and setting pricing based on street-level intelligence. We'll often hire a leasing team that can implement a new marketing strategy to reposition the asset in the marketplace. Or, if the asset is part of a larger center, we may consult with the ownership to create a break-up strategy. Though it is a complex process, selling one pad or part of a parcel can generate a much higher profit than selling an entire center as one piece.
Visit Faris Lee Investments at ICSC RECON in Las Vegas at Booth C150M.
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Geoffery Metz
Geoffery Metz is the content manager for ALM's GlobeSt.com, Credit Union Times and Treasury & Risk. Before joining ALM, he spent several years overseeing the newsroom at the financial wire service Business Wire, with special focus on multimedia presentation for the web.
