US Investors Focusing on Sale Leasebacks
Single-user investment sales in 2017 totaled $13.2 billion on 1,158 properties with a total of 171.4 million square feet, a 45.4% increase from the previous year, according to Avison Young.
CHICAGO—Industrial properties have become one of the most attractive investments in commercial real estate. And single user industrial properties, many of them sale leasebacks, are especially popular among US investors.
Single-user investment sales in 2017 totaled $13.2 billion on 1,158 properties with a total of 171.4 million square feet, a 45.4% increase from the previous year, according to an Avison Young report. And in the first quarter of 2018, investors spent $2.03 billion on 187 properties, totaling 26 million square feet.
“These are critical facilities for many tenants’ operations, and tenants are recognizing that they can monetize 100% of their real estate,” Erik Foster, Avison Young principal and leader of the firm’s national industrial capital markets group, tells GlobeSt.com.
Although the first quarter sales represent a 1.1% dip on a yearly basis, compared with the first quarter of 2017, Foster says the level of activity is significant. He also expects it will continue through 2018, largely due to an appealing cap rate environment and the focus on monetizing corporate facilities.
“The industrial users recognize that they can now get premium pricing,” he says, and sale leasebacks “allow companies to generate capital for business expansion and general expenses. These types of single user sales are particularly attractive to investors, as they provide long-term stability through the triple net lease structure.”
One of the most notable transaction this year was Supervalu’s decision in May to sell off eight of its distribution facilities to an undisclosed buyer for about $483 million. The facilities are in: Champaign, IL; Joliet, IL; Commerce, CA; Green Bay, WI; Harrisburg, PA; Oglesby, CA; Pompano Beach, FL; and Stockton, CA. The sale was encouraged by shareholders such as Blackwells Capital LLC, which pushed the supermarket giant to “unlock the value” of its real estate.
Los Angeles was the top market for single user sales in 2017, with $1.2 billion, followed by Las Vegas, with $1 billion, and New York City, with $897 million. Among the growth markets from 2016 to 2017 were Philadelphia, $181 million to $451 million; Dallas, $212 million to $404 million; and Miami, $206 million to $337 million.
Some of the largest increases were in Greensboro, NC, which jumped from $2 million to $452 million, and Raleigh, which went from $53 million to $346 million. “The Southeast is getting a lot of attention because of its population growth and good business climate,” Foster says.
In the first quarter of 2018, the average cap rate nationally was 5.8%. “The investor appetite is strong because the tenants lease their facilities for typically long periods of time, as many users will want to control the facilities for a long period of time, as if they still owned the property,” according to Avison Young.
“I think this is going to continue as buyers and aggregators of industrial real estate now realize that industrial is more of a mainstream investment than it has been in the past,” says Foster.