Mid Atlantic Real Estate Journal — Top Retail Deals 2011 — February 24 - March 15, 2012 — 21
www.marejournal.com
T OP R ETAIL D EALS “2011”
Marcus & Millichap
Taylor-Zang-Munley Group of Marcus & Millichap [Mark Taylor, Dean Zang, Christopher Munley, Derrick Dougherty and Peter Snell] 101 E. Elm Street, Suite 600 • Coshohocken, PA 19428 TOTAL SALES: $270,763,613 — 58 Transactions TOTAL SQUARE FOOTAGE LEASED, SOLD OR ACQUIRED: 2,000,000 s/f +/-
Christopher Munley Derrick Dougherty
Dean Zang
Peter Snell
Mark Taylor
Overview of 2011: 2011 was a year that saw accelerated velocity in both single tenant net lease sales and in shopping center sales. Demand for single tenant properties reached prerecession levels as supply was constrained by a decreasing expansion by many retailers, led by the two top drug store chains, Walgreens and CVS/pharmacy. Demand was not only driven by the 1031 exchange market, but by investors fleeing non-real estate fixed debt instruments like bonds for the higher returns of the real estate world. Cap rates fell over the course of the year by 50-75 basis points due not only to demand, but the plentiful availability of debt at historically low interest rates. In addition, equity that had been on the sidelines during the recession came into the market looking for deals and returns rather continue to sit in accounts earning one to two percent. By the end of the year, cap rates on investment grade drug stores like CVS and Walgreens had dropped to a range of 6.25 to 6.75 percent. Investment grade bank pad properties with rent bumps during the base lease term in some cases were below 6.00 percent, as were corporate fast food properties. Convenience stores, when available, also commanded very good cap rates. 2012 Outlook: This trend has continued into the early stages of 2012 as demand heated up about two weeks into the new year after a brief holiday lull. It is an excellent time for owners of single tenant net lease properties to sell if that is a strategy that is timely for them. Of course, financing, being plentiful and cheap, is an alternative as non-recourse debt is again available for good properties with credit, after being very difficult to obtain over the last three years. Of course, market size and geography are still important to investors. The Northeast Corridor from Washington, D.C. to Boston is again the preferred territory for many investors, especially institutional ones. Cap rates there tend to be in the lower end of the range quoted above. Sunbelt locations favored earlier in the decade no longer command the level of interest they once did. That said, the Raleigh-Durham, Charleston, SC, and South Florida areas are still attractive to many investors. As always, California also commands among the lowest cap rates in the country. With the Federal Reserve keeping rates down and continued low returns in other investment vehicles, the Taylor-Zang-Munley Group at Marcus & Millichap predicts 2012 will be another strong year in the single tenant net lease market. As we are in the market daily, we know where cap rates are on an almost weekly basis. The multi-tenant shopping center market has also seen an increase in velocity, for some of the same reasons as single tenant, but for other factors. Demand has increased. We have worked through the decrease in demand for retail space and the loss of retailers such as Circuit City, Linens N Things, and Borders. Vacancy rates in the Northeast have begun to decrease and rents are stabilizing. Grocery anchored centers are most in demand as institutional investors seek the safety of “necessity retail.” This somewhat herd like mentality is allowing some private high net worth equity groups to find deals that institutions skip over, such as well located non-anchored retail strips, centers in secondary and tertiary markets at higher cap rates, and even power centers that are the trophy asset within a smaller market. In addition to these factors is the fact that more lender owned or controlled products are coming to market as pretend and extend properties are no longer being extended, and some have leased up to a degree since lender takeover of them, making them more viable in the market. In addition, we are seeing more centers come on the market from private owners who are selling with debt in place to assume on properties where 10 year debt was placed from 2003 to 2005, coming due in the next few years. These transactions typically take longer due to the assumption component. With new construction still virtually nonexistent, and demand strong, more deals with a debt in place will come on the market in 2012 and buyers will simply have to deal with the debt if they want to buy. The Taylor-Zang-Munley Group at Marcus & Millichap sees 2012 as a year of increasing velocity in the multi-tenant sector. However, cap rates will be more stable and compress less than in the single tenant market due to debt assumption issues, market size and geography, and the quality of the anchor tenants. Only trophy like grocery anchored centers in major markets will see a decrease in cap rates. ■
M ARCUS & M ILLICHAP
Made with FlippingBook - Online catalogs