sion fund to the sector, according to IPE
Real Assets, which reported the transaction.
The sellers of these assets range from
developers like N3, which find the current
pricing hard to resist, to institutional inves-
tors that are making select dispositions.
Individual investors, mainly through 1031
exchanges, are also looking to exit their
holdings after having held onto them for
decades. Aging baby boomers also actively
selling, explains David Gorenberg, qualified
intermediary product leader at Wilmington
Trust. “The economy is reasonably strong
right now and interest rates are low, which
makes it the right time to sell,” he says. “If
you’ve owned property since the beginning
of the downturn 10 years ago, that property
has likely not only recovered but also
increased significantly in value.”
As these buyers and sellers converge on
the market, deals are starting to pick up.
“Trends like this
tend to gain
this could continue
into the second and third
quarter of this year,” reports
Jonathan Hipp, CEO of Calkain Cos.
Not only has the number of one off
deals been rising, but more importantly, so
have portfolio sales. At the end of last year,
for example, Dallas-based Landes Group
acquired 27 net-leased retail properties
located in 12 states in an $86-million transaction. The 563,000-square-foot portfolio
consisted of five Wawa locations, eight CVS
Pharmacy stores, four Service King
Collision Repair shops and 10 Walgreens.
Each property was occupied under long-term triple-net leases.
Competition was tight for this portfolio,
according to Justin Grissen, Landes
Group’s chief investment officer, and
there were a handful of buyers vying for
the deal on the best and final offer round.
In general, 2018 was an active year for the
company, which closed 65 net lease transactions. In this year’s first quarter alone, it
expects to close on 35 assets.
Also last year Broomfield Hills, MI-based
Agree Realty closed on a fairly significant
transaction: a $142-million sale-leaseback
with Sherwin Williams. In one swoop the
net lease REIT picked up a high-quality
portfolio of more than 100 retail properties.
Agree Realty is also looking forward to a
bountiful 2019, according to comments
president and CEO Joey Agree made dur-
ing a year-end earnings call. Its current
pipeline, he said, “contains several unique
opportunities that are anticipated to close
in the upcoming months” including urban
condos in core city center locations, smaller
sale-leaseback transactions with its retail
partners as well as early extensions, or what
the industry calls blend-and-extends.
This activity is, not surprisingly, starting to
affect pricing. Hipp reports private equity
investors are buying more opportunistic real
estate while REITs prefer assets with primary
lease terms of 10 years or more. On the
other end of the spectrum, private equity is
buying assets that trade at cap rates with 100
to 100-plus premiums over what a REIT
would buy. That’s because private equity
buyers need to achieve a higher return to
justify a purchase. “They are more opportunistic buyers looking for value add, blend-and-extend or five-year leases,” he says.
In some cases, sellers are willing to offer
discounts for portfolio sales in exchange for
certainty of execution, Hipp continues.
Many sellers are, in fact, bundling several
assets into a portfolio with this sort of play
in mind. “They want to trade to a buyer—
typically an institutional investor—that has a
high probability of closing.”
For her part, N3’s Wadleigh doesn’t see
many sellers agreeing to a discount. “We’re
just not seeing the premiums,” she says.
“This year, people expected net lease cap
rates to jump because of expected interest
rate hikes but we’ve seen only a marginal
increase. Demand is still very strong, espe-
cially for assets priced $5 million and under.”
N3, she added, is selling into the 1031
market “because that’s where the pricing is.”
As well as deals—or at least, some of them.
Indeed, as acquisition demand continues
to build, net-leased assets are making their
way to market via all sorts of scenarios,
including from the balance sheets of tenants such as Popeyes. ◆