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EVENT COVERAGE: RealShare Net Lease West Conference, Nov. 2015
So Many Buyers in Net Lease Space
By Natalie Dolce
LOS ANGELES — Why are sale-leasebacks and build-tosuit deals so popular? According to Andrew White, CCIM,
managing director of the western region at Gladstone
Commercial REIT, and a moderator at the recent RealShare
Net Lease West conference here, the answer is because “Cap
rate spread to treasury is still high.”
The “Opportunities” panel discussed the opportunities
in sale-leasebacks and the advantages of build-to-suit
developments. Panelist Peter Deltondo, director of Marcus
& Millichap Net Leased Retail Group, said that the most
aggressive capital he is seeing in this space is from the 1031
buyers. “Most of them are coming out of the apartment
sector and they are paying the most aggressive cap rates.”
In addition to the 1031 capital, there is a lot of demand for
Chinese investors to come into the states, he said. “They have
already started on the residential side. They get the money
out of China and diversify.”
The smaller investor, he added, is willing to pay a lower cap
rate, and is also an aggressive buyer right now. “The demand
has grown year over year, month over month and I don’t see a
let up going forward.”
Joseph Yiu, CIO and managing principal of ElmTree Funds,
said that there is an expected 390 million square feet of
industrial build-to-suits in line and that is expected to grow
over the next three years.
When asked about secondary markets, Yiu likes them. “That
is where we play… The yields are a little bit wider.”
With respect to underwriting, a lot of what Mike Fitzgerald,
SVP of retail sale-leaseback at VEREIT Inc., is doing on the
public side is constantly managing the concentration. “There
is a preference to be with large familiar names on the retail
side but there is room for these interesting sale-leaseback
deals that are looking to monetize newly acquired companies
that have real estate.”
Panelist Howard Sands, founding principal and managing
director of Corporate Partners Capital Group LLC, looks at
the quality of the real estate, the quality of the lease and the
quality of the tenant’s credit. “It is a triangle with one not
more important than the other. When we look at a portfolio,
we don’t have an opportunity to cherry pick. When you are
looking at a portfolio deal that was packaged, and you are
bidding on it, you are trying to make the bulk sale easier
for the seller than it would otherwise be on a one-off basis.
We know because we frequently resale assets. Certainty of
performance is a key factor.”
When asked what inning we are in pertaining to the sale
leaseback/build-to-suit market, Ralph Cram, president and
manager of Envoy Net Lease Partners, said that it is really
sector driven. For retail, we are late in the cycle and that is
because a lot of retailers don’t know what their floor plan will
be, he said. “It is food, mattresses and dollar stores… that is
who is build-to-suit today.”
But the best long-term investment, according to Cram, is
urban 30,000-square-foot to 50,000-square-foot high cube
space. “That is the best long term investment if you are
putting family trust in.” And the office sector, Cram added,
“doesn’t have anything happening besides the tech space.”
One thing Deltondo pointed out that was interesting to note,
is taking properties to market earlier than he used to in order
to lock in buyers. And the identity of those buyers, Fitzgerald
explained, is sometimes unknown. “I don’t think we fully
understand who we are competing with sometimes. There are
so many buyers out there.”
envoynnn.com
Contact Envoy President Ralph Cram:
[email protected] or (847) 239-7250