Cole Grabs 11 PetSmart Properties for $74M

August 30, 2011
By Barbra Murray, Contributing Editor

In an off-market transaction valued at $74 million, Cole Real Estate Investments has become the owner of a 300,000-square-foot portfolio of 11 retail stores fully occupied by pet-products provider PetSmart Inc. under a single triple-net-lease agreement. The transaction marks the second recent, major acquisition of PetSmart for Cole in the last two weeks, as just last week, the firm snapped up PetSmart’s 356,000-square-foot corporate campus in Phoenix for $102.5 million.

The stores, which can be described generally as free-standing, are located in Westlake Village, Calif.; Tallahassee, Plantation, Lake Mary and Boca Raton, Fla.; Evanston, Ill.; Oxon Hill, Md.; Braintree, Mass.; Flint, Mich.; Southlake and Dallas, Tex. “There’s a great geographic diversification for this portfolio,” Chad Adams, director of single-tenant retail acquisitions with Cole, told Commercial Property Executive. “If you review the five-mile demographic on each property, they’re just extremely strong locations.”

Cole will not have to worry about vacancies any time soon; 10 years remain under PetSmart’s original 20-year master-lease agreement and three automatic renewals allow for an extension of occupancy for as many as 20 additional years.

A portfolio of fully leased retail stores with a long-term income stream is high on most investors’ radar now, but Cole looked beyond the obvious attributes before signing on the dotted line. “One of the key things that we feel sets us apart is the underwriting we go through,” Adams said. “The acquisitions team is your first set of eyes on it. The second set of eyes is when our underwriting group takes over. They start really figuring out if we’ve priced this appropriately, and start digging into the lease extensively and all the underlying documents that are associated with any property.”

But their due diligence does not end with paperwork.

“Obviously we send someone to every property to walk it, talk to the manager, drive the trade area, report on any vacancies so that we know for sure exactly what we’re buying,” he added. “Cole does a very thorough job in getting our hands dirty and figuring out exactly what we have.”

Cole, which focuses on net-leased, single-tenant and multi-tenant retail properties under long-term leases, has been quite active in enhancing its portfolio this year. Just this month the company paid $91.5 million for a 496,000-square-foot freezer and cold storage distribution warehouse leased to Wal-Mart in Riverside, Calif., and shelled out a respective $34.3 million and 25.5 million for the 190,000 square-foot Forum power center in Ft. Myers, Fla., and the 139,000-square-foot Santa Rosa Commons shopping center in Pace, Fla.

Ferreting out assets that meet Cole’s criteria is no simple feat. Investors are salivating over well-located properties that are net leased to high-credit tenants under long-term agreements. Deals in the last few months include Harbor Group International L.L.C.’s acquisition of four Walgreens stores in metropolitan Chicago for $27.8 million and the Inland Real Estate Group of Companies Inc.’s purchase of a 118,000 square-foot, net-leased retail portfolio consisting of 16 properties individually occupied by such leading tenants as AT&T, Bank of America and Walgreens.

Finding the right opportunities frequently depends on having the right connections. “Right now, we are in a supply-constrained market,” Adams noted. “Therefore, we are using our extensive relationships in the marketplace to get to sellers who, perhaps, typically wouldn’t be a seller, and approach them with our credentials and our history of delivering and doing what we say we’re going to do. Obviously, the brokerage community is extremely important and we work with them all the time, but then we also have to take it upon ourselves to try to turn up deals that are attractive to Cole.”

The company relies on funds raised through a series of non-traded REIT products to make its purchases, and is primed to continue its shopping spree. “Our acquisition goal for 2011 is $3 billion,” Adams said. “About half of that is in single-tenant retail, a quarter of that number is in single-tenant office and industrial and the remaining portion is in multi-tenant retail, primarily power centers and grocery-anchored centers.”