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CORONA DEL MAR, CA—The news about the demise of big-box retail doesn't apply to Internet-resistant tenants, according to industry research and one Lake Elsinore, CA, deal in particular, Hanley Investment Group EVP Kevin Fryman tells GlobeSt.com. HIG recently represented the seller, a family trust from Orange, CA, and seller, a private investment partnership based in Murrieta, CA, in the sale of Oak Grove Crossing, a 22,577-square-foot shopping center shadow-anchored by Target in Lake Elsinore, CA. The purchase price was $11.6 million.
Fryman, who represented the seller while HIG associate Jeff Lefko and EVP Bill Asher represented the buyer in the transaction, tells GlobeSt.com exclusively that while much has been reported about the failure of big-box retail, Internet-resistant tenants are still thriving in this space. He says according to CoStar, in the Inland Empire, between January and July 2016, in the category of multi-tenant stabilized retail (shadow anchored and non-shadow anchored), there were 11 transactions with a gross transaction volume of $74 million. In 2017 for the same period, there were 21 transactions with a gross transaction volume of $144 million, a clear leap.
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“On a company level, our results are very similar,” says Fryman. “If you look at the multi-tenant properties that we have sold this year, 67% of the deals have been stabilized shop-tenant retail properties primarily occupied by Internet-resistant tenants. Last year at this same point in the year, the percentage of stabilized shop-tenant retail to multi-tenant retail sold was less than 50%.”
In the past, the industry has used the term “daily-needs tenants” to highlight the grocery and drug-store tenants that drive customer traffic to the shopping center without necessarily examining the shop tenants that also would drive traffic to the center on a daily basis, like a Starbucks, for example, Fryman adds. “The term 'Internet-resistant tenants' broadens that term to include tenants that provide products, services or experiences that you can't buy online. Examples of Internet-resistant tenants are quick- and casual-serve and sit-down restaurants, Starbucks and cell-phone and tax-preparation services, plus medical, dental, optometrist, hair and nail services.”
In his opinion, Fryman says the Internet is working to enhance restaurant sales for many operators who previously had a limited number of customers that they could serve due to seating capacity. However, now with the Internet and delivery services like Uber Eats, Grubhub, Foodler, Seamless and Yelp Eat 24, restaurants can increase sales without increasing the number of tables, and customers never have to leave their homes. “Fast-food giant McDonald's is launching mobile ordering, mobile pay and curbside pickup across its 14,000-plus US restaurants. Starbucks plans to open more 'drive-thru only' formats (typically less than 1,000 square feet with no interior café), which are situated on smaller corner lots in high-traffic locations.”
Regarding the Lake Elsinore transaction, Fryman tells us the future nearby development of a Walmart Supercenter as well as a new 60,000-square-foot shopping center anchored by Five Below, Marshalls, Skechers and ULTA will further drive traffic to this area. It is expected that these developments will consist of only anchors and pad buildings with no competing shop tenants.
“This type of retail asset is a relatively low-risk option for investors due to the high-exposure location, diversity of corporate and regional tenants and a strong traffic-driving anchor like Target. Additionally, investors of this type of asset can typically spread out their risk over multiple tenants versus a single-tenant asset.”
Fryman adds that Oak Grove Crossing presented an ideal opportunity for the buyer to acquire a quality shadow-anchored multi-tenant retail center with a below-market McDonald's ground lease and the ability to sell it as a single-tenant net-lease investment.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
