LOS ANGELES—A single-tenant triple-net leased asset has traded hands at $500 per square foot in a whirlwind of a transaction. Stock Building Supply, which has been a tenant at the property for 20 years, had a right of first refusal to purchase the asset. When the original owner decided to dispose of the building, Stock Building Supply exercised its option and purchased the building for $14.75 million, according to industry sources unrelated to the deal. The company then turned around and sold the property for $15.7 million in a fully marketed transaction that generated 11 offers from investors. As a result, the tenant earned nearly $1 million in profit in two months. 

“The tenant called us and asked if they should exercise the right of first refusal and secure their future in the building, but the only way they would do that is if they could capitalize on the market and get back their capital investment or better,” Chris Sands, founder of Sands Investment Group, tells GlobeSt.com. Sands represented the seller in both transactions. He was able to bring the property to market at a higher price point because of a lease-back he helped the tenant structure that was well above the market-rate rents in the area, which average between $18 to $20 per square foot. He wouldn't disclose the rental rate, but told us that it was significantly higher than market rate. “We sat down and discussed what the leasing structure needed to look like to be enticing to the market, and settled on a 15-year term with a 1.5% annual increase,” he says.

However, he did get some objections from potential buyers about the price and the high rental rate. The market comparables for this property range from $225 to $300 per square foot, according to Sands. “I got a lot of push back from other buyers because of some of the variables of the deal,” he says. “We brought it to market at a 5.75% cap rate, which I hoped would generate a lot of attention from people chasing the yield and not getting bogged down with these two variables.”   

In the end, he was right. The sale generated 11 strong offers and 9 all-cash offers. The winning all-cash buyer is an unnamed private investor who closed on the property in only eight days from start to finish. “The reality of the situation is that there is a huge demand for quality properties in well-located markets like this,” says Sands. “We went into a best and final bidding war, and when we went under contract, the buyer had done their due diligence already.” Although the property sold in a highly competitive transaction, Sands admits, “If you lost that tenant today, there is no way that you could replace them, so the value of the property would be a little bit less.” But, he notes that the tenant is a strong, publically traded company that has occupied the property for 20 years, so there is little risk in losing the tenancy. Located at 3860 Grand View Blvd in Los Angeles, the 31,242-square-foot property serves as Stock Building Supply's West Coast flagship store.

This sale is further evidence of the high investor competition for net-leased properties, according to Sands, whose company specializes in net-leased transactions. As a result, prices are escalating. Earlier this year, for example, Hawthorne X LLC has purchased the Hawthorne Exchange property from Danros and Cal Select Properties for $25 million, at a 6.53% cap rate. The sales price for the four-building 60,352-square-foot retail center equates to $414 per square foot.