Is it a buyer's market? Or a seller's market? Isn't that the age-old question in commercial real estate? In a sector as hot as retail net lease, it can can be hard to discern. There are several reasons to buy, sell and even hold.
Though these viewpoints constantly shift, Jim Gibson, regional manager of Stan Johnson Co. (RECon booth S241) is pretty sure that it's a seller's market right now. This net-lease expert also tells GlobeSt.com how to maximize value, the state of this vibrant sector and what investors should be mindful of.
GlobeSt.com: How would you describe the state of the net-lease retail-investment market?
Jim Gibson: In three words: Extremely. Extremely. Active. Since the economic downturn of 2008/2009, we have seen a steady increase in transaction volume year over year, and we fully expect 2015 to be the same. It can be considered one of the most active time periods in Stan Johnson Co.'s 30-year history. Our institutional clients are still actively purchasing net-lease assets, as are our private clients.
GlobeSt.com: Who holds the leverage? Is it the buyer or seller? And why?
Gibson: For strong-credit tenants and longer-lease terms, the leverage is currently squarely in the seller's corner. The demand for properties with these characteristics well outpaces the current supply. With shorter-term leases and smaller, private credits, the buyer will certainly have negotiating leverage for taking on this additional risk.
GlobeSt.com: What advice do you have for investors who aren't sure whether now is the time to buy, sell or hold?
Gibson: Every investor has different motivations in time and varying criteria for making an investment decision, so this is a little tougher to answer. My advice would be to review your criteria with an expert in the net-lease arena, and then make your decision based on that advice. Cap rates are at historical lows, so we are certainly holding "sell" discussions with our clients. With interest rates at historical lows as well, it still can make sense for our buying clients to leverage an asset and yield good, safe returns.
GlobeSt.com: Where are the opportunities to achieve value today as an investor looking to buy?
Gibson: The net-lease space has generally always been a very safe place for investors to achieve a good return for the credit risk they are taking. I really like opportunities that have longer than 12 years and rental increases built into the lease term as an inflation hedge, and a way to create value as the rent increases. This, of course, assumes cap rates remain constant or decrease over the hold period. Medical-related assets tend to fit these criteria nicely.
GlobeSt.com: What advice do you have for investors looking to invest in net-lease properties for the first time?
Gibson: At the risk of being cliché, find an experienced expert investment-sales advisor who is client-focused and partner with them. An experienced investment-sales advisor who is working on your behalf can locate the asset that fits your criteria, negotiate best pricing and make sure there are no expensive mistakes. In addition, an investment-sales advisor can find off-market properties that may be purchased at a little better pricing. Of course, at Stan Johnson Co., we have investment sales advisors across the country that will be glad to assist.
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