2010 Sperry Van Ness Year End Summary
Single Tenant Investments
By Peter Colvin
National Director of Single Tenant Investments
Sperry Van Ness
Many owners of strip centers and office buildings got their first taste of single tenant investments in 2010, and they liked it…a lot. No vacancies, little or no management and no phone calls from tenants that could no pay their rent. What a refreshing change!
As a result, many buyers focused on finding and purchasing quality single tenant assets, leased long term to credit companies, with little or no landlord responsibilities. This shift increased the demand and the supply of good properties was gobbled up quickly. Prices increased as cap rates lowered across the board, rivaling 2007 rates. Low interest fueled the demand.
For investors in the $4,000,000 + range, the stars of the show were Walgreen’s and CVS. Cap rates dropped nearly ½ point in the last quarter as REITS, trusts and families outbid each other to win the assets. The average drug store cap rate was approx 7.7% at year end. Sperry Van Ness had several successful drug store transactions. Some listings drew as many as 10 offers, driving up the price for our listing clients. One offer in Miami secured a purchase price $500,000 higher than the other nine offers on the same property. We found the best buyer.
In the $2-$4M range, restaurants like Applebee’s and Macaroni Grill were gobbled up. Over 100 Applebee’s were bought by investors as the Dine Equities sale/leaseback of Applebee’s and the Mac Acquisitions LLC sale/leaseback of Macaroni Grill units were placed with individual investors. Cap rates dropped nearly ½ point in the last quarter as the supply tightened. Average cap rates ended the year at approx 8.25%. Sperry Van Ness sold a large share of these properties.
In the $1-$2M range (the most active price range) bank deals, especially ground leases, were sought after. Advance Auto and O’Reilly’s topped the discount auto parts arena. Small portfolios of Burger Kings, Pizza Huts and other brand name QSR’s were sold one-off as investors hunted for well located sites leased to popular brands. Average cap rates ended the year at approx 7.7%. Sperry Van Ness advisors were major players in this arena, selling numerous portfolios.
In the under $1M range, dollar stores became more and more attractive to investors seeking strong credit at an affordable price point. Family Dollar and Dollar General were the most active in that niche. Dollar General adjusted to investors’ needs and introduced the Triple Net 15 year lease. This brought first time dollar store buyers off the sidelines. Average cap rates were higher on dollar stores than other types, mainly due to many being in smaller town locations with less land value. The cap rates ended 2010 at 9.2%. Sperry Van Ness was a market dominator in Dollar Stores.
What to expect in 2011: The key word will be “Sale/Leaseback”. The pent-up demand for growth and remodels by companies and growing multi-unit franchisees is strong. Instead of taking on more debt, many will fund their growth and remodels by using their real estate equity, especially since it has increased due to rising values. Many institutional buyers that would not buy franchise backed credit in the past are now more than happy to do so.
Sperry Van Ness has anticipated this explosion and has formed “Easy Leasebacks”. (www.EasyLeasebacks.com) This innovative group of single tenant specialists is matching portfolios of single tenant properties with the best buyers. It is helping growing companies sell their assets in the fastest, most affordable and confidential way possible to fund their growth without taking on additional debt. Easy Leasebacks is having great results.
Reverse sale/leasebacks caught on as fast growing trend in 2010. Sperry Van Ness Advisors helped many developers build new single tenant properties by bringing in investors to buy the land and fund the construction. This kept things going while banks stopped lending or required too much cash from the developer. This trend should continue for a long time. Investors get a little better cap rate as a bonus for coming in early, so it is a win-win for both investors and builder/developers.
Dollar stores should continue to sell briskly as more and more people make a decision to cash in their low yielding bonds and CD’s for a long term 10% + cash on cash return. Investors continue to seek bank and fast food ground leases, well located restaurants, discount auto parts and drug stores. 2011 should be a continued healthy market for high quality, well located single tenant properties. Banks seem to agree and got more aggressive in lending on these in the 4th quarter of 2010.
Sperry Van Ness gained a much larger market share of Single Tenant transactions in 2010 as sellers realized that to get the best offers, a property needs to get maximum exposure. The buy pool changes often, with new investors coming into the market every day. The platform of exposing properties through new social media networking and unselfishly sharing commissions with the entire brokerage community has worked very well. It helped investors to find their deals and sellers to meet their pricing goals.
Some of the top single tenant specialists from Marcus and Milichap and other national companies joined Sperry Van Ness in 2010 and enjoyed great success in their new-found sharing and team support. Many of the 2010 transactions involved multiple advisors teaming up for the greater good.
As a single tenant specialist and leader of a fantastic team of professionals that put their clients’ needs ahead of their own, I look forward to another great year in 2011!
Peter
Peter Colvin
National Director of Single Tenant Investments
Sperry Van Ness
