Luther: While an investor may have to pay a 5.5 or 5.75 cap rate for a single-tenant asset that is occupied by a national credit tenant such as a Vitamin Shoppe, Chipotle, Starbucks or Mattress Firm, that investor can acquire a strip center featuring these tenants and credits with comparable lease structures (10-year terms, with 8 to 10 percent increases every five years) at cap rates in the low- to mid-6 percent range. Reserving for roof, structure and management fees, the yield of the strip center alternative, with identical tenant credit, still offers the investor a return equating to 50 to 100 basis points in cap rate above comparable STNL assets.

GlobeSt.com: Can you provide other ownership benefits of a smaller, multi-tenant center compared to a STNL asset?

Luther: By its very nature, a high-quality pad or strip center offers the investor a more diverse income stream and more effectively distributes risk across multiple tenants, allowing the investor to better weather an economic storm. And, perhaps more importantly, tenant credit risk or deterioration, or a particular tenant use becoming obsolete – as we all have seen happen as technology advances and consumers' tastes change, is more effectively avoiding with a multi-tenant retail center, particularly those with primarily restaurant uses. For example, many developers who owned high-quality strips with Blockbuster as a tenant were able to easily re-tenant that space, while still receiving rent from their remaining users to help carry the property through a recession and lease up of vacancy.

Overall, we anticipate consistent transaction activity and cap rate compression over the next 12 or 24 months with this type of product as many STNL owners elect to exchange into and enhance yield by investing in stabilized multi-tenant assets.

Visit Faris Lee Investments at booth 603 in this year's ICSC Western Conference & Deal Making in San Diego.