Greetings!
You are receiving the
National Single Tenant Insider as a result of your involvement in the net lease investment arena as an investor, developer or supporting professional to the commercial real estate industry. We welcome your feedback and ideas for future articles. If we can assist in any way for your buying, selling or development needs, please let us know. Wishing you and your family a Happy Holiday Season and look forward to being in touch in 2018!
Best wishes,
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Nancy Miller, CCIM
President
Net Lease Investments
Bull Realty, Inc.
404-876-1640 x 118
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IN THIS ISSUE:
- Net Lease Round Up
- Foursquare's QSR Loyalty Index Survey
- Industry Soundbites
- Ask Nancy
- Recent Sales
- Acquisition Opportunities
- Properties Wanted
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Net Lease Roundup - Volumes Remain Strong
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Nancy Miller participates in a national study of net lease transaction activity and buyer sentiment done quarterly by MORGAN STANLEY. Highlights of the latest study, completed in October, are below.
The key findings:
1. NNN volumes are up! Despite concerns for volatility in interest rates, NNN volumes are up 3.3%, year over year. In comparison, general CRE (commercial real estate) volumes are down 8.6%.
(See Exhibit 1, Source: Real Capital Analytics.)
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2. Greatest influences on NNN deals:
- 41% of the brokers in the survey see asset quality as the most important factor impacting deal volume, up from 33% in the prior quarter’s survey.
- 17% of the brokers in the survey see interest rates as the most important factor impacting deal volume, down from 30% in the prior quarter’s survey.
3. The Future of CAP Rates: Cap rates, in general are anticipated to increase. More than 50% of the brokers project cap rates on shorter term leases to increase 5-20 bps. However, 15% or less of the brokers expect cap rates on long term leases to go higher.
Below shows the change in cap rate from January 2016 to October 2017 by remaining lease term.
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4. Imbalance of Supply/Demand continues to be a factor for investors.
5. Where are the buyers?
- While overall investor interest activity is down from the last quarter’s survey, the most active groups included private equity, small investors and family offices.
6. What is the impact of “The Amazon Effect”?
Morgan Stanley considers Amazon to impact the drug store/RX markets. We have already seen the impact that their acquisition has had on causing Big Box retailers such as Walmart and Target to focus more on internet sales as a tool to drive customers to the stores for pick up. 86% of the brokers in the survey also think that the sporting goods sector is likely to show more weakness. While the study did not mention the auto parts retailers….what about them? TBD….
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Foursquare's QSR Loyalty Index Survey
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Foursquare recently released a 2017 QSR Loyalty Index, which assessed the top 50 QSR chains in the U.S. based on customer loyalty.
Foursquare used what
QSR Magazine calls their "location intelligence platform" to measure foot traffic in four metrics to determine loyalty.
The top 10 QSRs ranked by loyalty according to Foursquare are:
- Starbucks
- McDonald's
- Dunkin' Donuts
- Tim Hortons
- Chick-fil-A
- Whataburger
- Sonic Drive-In
- The Coffee Bean & Tea Leaf
- Taco Bell
- Panera Bread
With a surprising #11, worth mentioning of Bojangle's Famous Chicken 'n Biscuits!
Download the full results of this exciting survey
here!
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Tax Reform & 1031 Exchanges
On November 2, 2017, the House released its proposed tax reform bill. Senate Republicans released a summary of their tax proposal on November 9th. Fortunately, both tax proposals preserve the ability to defer taxes for exchanges of real property pursuant to Section 1031. However, exchanges of personal property are eliminated under both proposals. In order to become law, the bills need to be passed by the House and Senate, reconciled, and then the final bill must be passed by Congress and signed into law by the President. It's the goal of the Republican leadership to sign the bill into law by the end of the year.
For more information on why 1031 exchanges are so valuable for investors and how they support growth for the economy, see
www.1031taxreform.com.
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The Future of Inner City Parking
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The future is here. CityLift Parking's fully automated parking systems are coming to California and New York very soon. The Hive in Oakland, CA and Star Tower in Long Island City, New York are the first in automated parking.
Read more
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Robert from California asks:
Nancy, we are going to finance part of our single tenant purchase. Do you have any suggestions on when to do this and are there any particular recommendations that you have?”
Robert, there are several factors to consider and plan for:
- Make sure that you have your personal financial statement ready and available for a lender to review PRIOR to making an offer for a property.
- Ensure that you have a sufficient cash down payment that will be appropriate for the LTV (Loan to value) that you are looking for. As an example, if you have $500,000 in cash for the purchase, make a rough assumption that you will put at least 30% down and finance 70% (70% LTV). This means that the maximum price of your purchase is around $1,500,000 without putting additional cash down.
- Make some important decisions: a) amortization period: 15, 20 or 25 years. The longer the amortization period you choose, the lower your mortgage payments. However, most loans will have a balloon payment in 5, 7 or 10 years. B) Be cautious about “fully amortizing” loans since the prepayment penalties are going to be high if you plan to sell the property sooner vs. later.
- Contact us or some lenders that specialize in single tenant financing and get some illustrative rates. Ask them if they will underwrite the types of net lease properties that you are interested in.
- Lenders are very particular about the strength of the tenant. Said another way, they look at the strength of the underlying lease guarantee. Sometimes lenders do not favor smaller franchisees while they like larger “national credit tenants.”
- Once you have identified a potential property that you are going to make an offer on, go back to the lenders that you spoke to and show them the offering memorandum and discuss the particulars of the transaction. In other words, get an informal “green light” from one or more lenders that they can do the transaction based upon the LTV, quality of the tenant, the amortization period, and your personal financials.
We are glad to assist in talking through the best strategy for you!
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- NAPA Auto Parts - Nancy Miller and Rob Taylor of Bull Realty listed and sold this NAPA Auto Parts located in Lithonia, Georgia in late November for $2,120,000 at a 6.75% cap rate with 7 years remaining on a NNN lease.
- Zaxby's - Nancy Miller represented the buyer in the sale of this Zaxby's located in Dallas, GA. The October 2017 transaction sold for $2,475,000 at a 7.52% cap rate with a NNN lease with a 5 year term and 3 x 5 renewal options.
- Dollar General - Bull Realty represented the seller in the sale of this Dollar General located in Valdosta, GA. The September 2017 transaction sold for $1,130,000 at a 7.35% cap rate with a 15 year NNN lease with 10 years remaining.
- Applebee's - Bull Realty represented the seller in the sale of this Applebee's located in Dawsonville, GA. The August 2017 transaction sold for $2,925,000 at a 6.4% cap rate. There are 15 years remaining on a 20 year NNN lease with options.
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Acquisition Opportunities
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Starks, LA
- NEW LISTING
- NN lease thru 5/23 - performs at a 9.1% cap with percentage rent
- Cash cow at $490K
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Newport, TN
- Back Up Available!
- Value Priced at $799,000 or 6.6% cap
- NNN lease with 8 ½ years remaining
- Operated by one of largest franchisees
- Traffic counts over 23k per day!
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Elizabeth City, NC
- Back Up Available!
- $699,000 or 7.6% cap
- Successful NN lease with extended term
- Last stop before the Outer Banks
- HVAC systems recently replaced by tenant
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Net Lease Properties $1.5 - $4M in larger metros only
10+ years or more
NNN only
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Valuation Services
Would you like to see what your property would bring in today's market?
CLICK HERE
The market is in short supply of quality net lease properties. You will never get more for your property than today. Don’t wait. Let us give you a no-obligation Broker Opinion of Value.
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Listen to the Net Lease Experts on the CRE Show
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Nancy Miller, President of National Net Lease Investments with Bull Realty and Tim Kinney, Vice President of Capital Markets with Marcus & Millichap joined Michael in Studio One to discuss what's hot in single tenant net lease.
Watch Now
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The information in this newsletter is deemed reliable but is not warranted. Any information important to your business should be independently confirmed in an appropriate due diligence period. All rights reserved.
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