{"id":1004126751,"date":"2015-09-02T12:13:47","date_gmt":"2015-09-02T20:13:47","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004126751"},"modified":"2022-12-04T12:45:19","modified_gmt":"2022-12-04T20:45:19","slug":"the-hottest-product-type-within-net-lease-retail","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/the-hottest-product-type-within-net-lease-retail\/","title":{"rendered":"The Hottest Product Type Within Net-Lease Retail"},"content":{"rendered":"<p><em>By Brandon Duff, Regional Director, Stan Johnson Co.<a href=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2012\/09\/Brandon-Duff-c.jpg\"><img loading=\"lazy\" decoding=\"async\" data-attachment-id=\"1004046870\" data-permalink=\"https:\/\/www.commercialsearch.com\/news\/institutional-investors-look-to-net-leased-property\/brandon-duff-c\/\" data-orig-file=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2012\/09\/Brandon-Duff-c.jpg\" data-orig-size=\"2549,1978\" data-comments-opened=\"1\" data-image-meta=\"{&quot;aperture&quot;:&quot;0&quot;,&quot;credit&quot;:&quot;&quot;,&quot;camera&quot;:&quot;&quot;,&quot;caption&quot;:&quot;&quot;,&quot;created_timestamp&quot;:&quot;1301582044&quot;,&quot;copyright&quot;:&quot;&quot;,&quot;focal_length&quot;:&quot;0&quot;,&quot;iso&quot;:&quot;0&quot;,&quot;shutter_speed&quot;:&quot;0&quot;,&quot;title&quot;:&quot;&quot;}\" data-image-title=\"Brandon Duff c\" data-image-description=\"\" data-image-caption=\"\" data-large-file=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2012\/09\/Brandon-Duff-c.jpg?w=1024\" class=\"alignright size-thumbnail wp-image-1004046870\" src=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2012\/09\/Brandon-Duff-c.jpg\" alt=\"Brandon Duff c\" width=\"150\" height=\"150\" \/><\/a><br \/>\n<\/em><\/p>\n<p>They simply cannot get enough of them\u2014referencing investors\u2019 current acquisition appetite for net-lease grocery properties\u2014the hottest product type within the net-lease retail asset class today, seeing cap rates compress 125-200 basis points in the trailing 18-36 months, and 300-375 basis points since the GFC.<\/p>\n<p>The grocery industry, one of the largest industries in the U.S. Economy according to the U.S. Department of Commerce, has been and continues to be\u2014rapidly changing.\u00a0 Customers are spending more in prepared food sections and sit-down eateries inside the actual stores themselves\u2014a model that operators such as Whole Foods, Wegmans, Hy-Vee, and Mariano\u2019s have seemingly brought to life.\u00a0 Customers are demanding more health conscious foods and fresh produce found in places such as Sprouts and Fresh Thyme.\u00a0 Value conscious shoppers are accepting limited assortments from Trader Joe\u2019s, Aldi, and Save-A-Lot, who carry their own private labels and fewer SKUs than a traditional grocery store format.\u00a0 Customers are buying from multiple retailers\u2014Whole Foods for produce and Costco for non-perishable goods, for example.\u00a0 Additionally, non-traditional grocery concepts such as dollar, drug, and c-stores have seen food and consumable items now account for at least 20 percent and up to 65 percent of their volume.\u00a0 While this shift has put serious strain on the status quo, specifically the sales and gross margins of traditional grocery operators, it has created opportunities for others, leading to consolidations, M&amp;A, and expansion.<\/p>\n<p>As the opportunity continues building momentum, net-lease grocery properties are offered for acquisition from build-to-suit developers, existing property owners, and via sale-leaseback from the retailers themselves.\u00a0 These properties receive a majority of annual rent from a grocery tenant operating under a NNN lease with 10-20 years of base term, and guaranteed by an investment or non-investment grade tenant.\u00a0 Historically, we have seen institutional groups, notably fund managers and REITs be the most active buyers for these transactions, whether single property or portfolio offerings.\u00a0 However, in trailing 24 months, the private investor base has come to the forefront.\u00a0 Specifically, tax deferred exchange buyers and foreign capital sources, both including\u2014family offices, partnerships, and high-net-worth individuals.\u00a0 These private investors are now at the table for almost every opportunity and out bidding institutional groups sometimes by 100+ basis points, and on deal sizes $100+ million.<\/p>\n<p>A major theme over the last half decade has been investors\u2019 desire for yield and painstaking effort to find it on a risk adjusted basis.\u00a0 This is especially true of institutional groups who typically require specific hurdles to satisfy returns promised investors\u2014dividends for instance.\u00a0 Nevertheless, private investors also emphasize yield.\u00a0 For example, today aggressive financing options exist for institutional <em>and<\/em> private investors alike, diminishing the competitive advantage institutions once had with their cheaper cost of funds.\u00a0 As such, we are seeing private groups utilize leverage competitively, yet don\u2019t mandate the same return thresholds institutional groups do, allowing them to pay more for properties they desire most.\u00a0 In fact, often times we see private investors accept neutral leverage, hoping rent growth throughout the lease term will provide at least some upside down the road.\u00a0 Private investors are also more inclined to pay \u201call-cash\u201d when leverage isn\u2019t accretive, especially to win a deal over one of their institutional competitors. \u00a0Then considering other motivators typical of private investors such as needing to complete a tax deferred exchange, parking cash in hard assets for equity preservation, or investing in the U.S. because of geopolitical concerns abroad\u2014institutional groups simply cannot underwrite competitively.<\/p>\n<p>&nbsp;<\/p>\n<p>Some consider today a \u201cperfect\u201d environment for sellers of property, and some even dare call it a \u201cperfectly efficient\u201d market, which might be hard to argue.\u00a0 Nevertheless, history does indicate cycles come and go, along with corresponding property values\u2014even for grocery, an industry as fundamental to our existence as healthcare.\u00a0 Though, the demand for net-lease grocery properties seems driven by as much a cultural shift as an economic one, and it\u2019s difficult to foresee customers accepting the old status quo.<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>By Brandon Duff, Regional Director, Stan Johnson Co.: Investors simply cannot get enough of these properties.<\/p>\n","protected":false},"author":952,"featured_media":1004046870,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[37301],"tags":[],"class_list":["post-1004126751","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v23.4 (Yoast SEO v24.6) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>The Hottest Product Type Within Net-Lease Retail - Commercial Property Executive<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/the-hottest-product-type-within-net-lease-retail\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" 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