Pruett says the cap rate compression
makes for a good time to be a seller.
Though, he adds, there are plenty of
opportunities on the buy side.
Some areas of risk Pruett points to are
a potential rise in interest rates and a
potentially large stock of obsolete indus-
trial spaces—though those assets will
eventually find their way to other uses.
“It’s not a speculative market,” says Pruett.
“Build-to-suits have helped control that.”
He points to a $2-trillion-plus market in
which less than 10% is publicly owned.
“It’s still a fragmented sector,” says Pruett.
“But corporations are using the capital
markets as a tool. Debt is inexpensive and
we’re seeing them taking advantage of a
lot of sale-leasebacks.”
In a recent GlobeSt.com article, Brad
Richardson, associate director of Stan
Johnson Co., says there are many factors to
the Southwest market that lend itself to
investors. According to Richardson, who is
based in Scottsdale, AZ, the proximity to
Californian investors and their capital is
the primary driver.
“As is the case in most parts of the
country the state of the market in Arizona
and the Southwest could be described as a
feeding frenzy with properties being sold
at near record cap rates,” Richardson says.
“The shortage of new net leased product
along with a large buyer pool equipped
with cheap debt has created a historic
market for sellers. The large amount of
institutional and exchange buyers focused
on acquisitions in the Southwest have
made it difficult to source deals. In most
cases, deals are sold prior to hitting the
market. The product hitting the market is
typically second- or third-generation
properties with shorter-term leases.”
Who holds the upper hand in this market? “Sellers hold the advantage in today’s
market because of the significant difference between the supply and demand,”
says Richardson. “It is a great time to be a
seller as many properties are being sold at
record cap rates and buyers are willing to
accept very aggressive terms. The two
main factors are the lack of new supply in
the Southwest and large amount of buyers. The supply may not change in the
near future as many retailers are still
expanding at a fraction of the pace seen
from 2004 to 2007. The large amount of
buyers in the market is due primarily to
the debt markets and the ability to get
cheap financing. The 1031 exchange
markets have been driven by sellers of
multifamily properties where there are
debt options in the 3% range. The debt
markets also affects the ability for institutional investors to raise capital and place
debt on properties after closing. Overall,
if I was an owner of net leased property
and not a long-term holder I would consider selling in today’s market.” ◆
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It’s still a
a tool. Debt is inexpensive
and we’re seeing them
taking advantage of a lot of