LOS ANGELES—There is more of an interest in build to suits. So said speakers on the Town Hall Power panel at RealShare Net Lease West when talking about development.
Held at the California Club here Thursday, panelists said that the question, though, is how you finance it. Pertaining to build to suits, Gordon Whiting, managing director of Angelo, Gordon & Co., said that the biggest change in the last couple of years is that "you used to get a premium and that premium has gone away."
Gino Sabatini, managing director and head of net lease investments at W.P. Carey, said that "build to suits are getting priced to incorporate some of the risk now more so than they had been years ago." And that slight bump up, he said, is scaring developers. "If rates continue to go up, I think that will increase."
When asked about what has changed over the past 6 months in net lease, Brian Mansouri, VP of Global Net Lease, said that the market had gotten more and more aggressive up until about six months ago, then I eased up a little bit. "There has been a bit more uncertainty," he said. "CMBS has gotten a bit wider and people are questioning where we are going to go from here."
Whiting added that with interest rate uncertainty, "you may have a slowdown for a while but people will move forward." The question, he said, is how much do cap rates increase because of it all.
One thing on panelists' mind was changes happening in the drugstore industry. "We might be over-drug stored," said moderator Maurice Nieman, SVP of CBRE.
Switching gears a bit, Whiting explained that net lease is becoming much more of an institutional asset class. "You have seen more foreign capital coming in," he said, adding that it is an asset class that performs well during the downturn. "I think you will see more capital come into the space."
As for the best opportunities for investment in the next 12 months, Sabatini said it will be by sticking to primary markets. He pointed to California as being terrific. Even if at a lower cap rate, he said that for someone looking to get out in five years, he would be in California versus Rochester.
For Whiting, the best opportunities depends on one off deals or if you are building a large diversified portfolio. But like Sabatini, he said to stick to primary markets. Looking at global markets, he pointed to Western Europe if you are talking retail.
As far as product types, panelists say industrial is the place to be. Mansouri said the distribution, logistics, warehouse products have been hot from an institutional standpoint. "Buying assets that are core to the tenants' business operations is going to get you a bit more yield than if you are buying in retail. Suburban office is still tough in terms of long-term viability."
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
