Excerpt of article published by Commercial Property Executive Commercial real estate executives weigh in on what’s to come in the office and industrial sectors. With a new year right around the corner, Commercial Property Executive asked industry experts to forecast the business and economic factors that will determine deal flow and pricing in the office and industrial real estate sectors. Jeff Cox, Managing Partner & Sales Leader, East Region, Stan Johnson Company: Access to capital remains quite good, and we’re seeing strong buyer demand as investors rush to take advantage of the current lending environment. Our clients are also watching the return to office policies communicated by large corporate employers, the growing labor shortage, and persistent supply chain issues.  

Originally published by GlobeSt Throughout the majority of the pandemic, office investors were widely driven by a flight-to-quality, as those assets offered the most resilience amid demand uncertainty. While core and core-plus office properties are still in favor, value-add liquidity is quickly recovering as clarity surrounding rent growth and the future of office demand improve, according to new findings from JLL.  Thus far in 2021, value-add is the most sought-after profile with the share of value-add office properties in the current pipeline recovered from declines in 2020, and now recovering towards the 2017-2019 levels, JLL said. Additionally, value-add buyer pools are broadening after significant impact in 2020 and have seen the most improvement in 2021 relative to 2020. “We’re seeing investors pivot back to previously out of favor sectors like office and hospitality that can produce very attractive yields,” said Coleman Benedict, senior managing director and co-head of JLL’s National Office Practice, in prepared remarks. “As part of this rotation back to office, value-add is definitely back on investors’ radar reinforcing the investment community’s confidence in the long-term stability of the office market.” ‘Uncertainty No Longer Clouds’ Multi-Tenant Asset Sectors Ryan Roedersheimer, director in Stan Johnson Company’s Cincinnati office, specializes in nationwide multi-tenant investment property sales. He tells GlobeSt that he has seen a resurgence of interest in recent months for a variety of asset classes that had demand levels squeezed by the pandemic. “The most renewed interest is in multi-tenant assets—this includes office and retail, with an emphasis on value-add properties,” Roedersheimer said. “Uncertainty no longer completely clouds these sectors. Workers are returning to office environments and consumers are returning to stores. “For investors who’ve been chasing yield, they’re finding fewer options in the red-hot industrial market, and this dynamic is leading them to look elsewhere. With suppressed demand for multi-tenant assets in the last two years, there’s a lot of opportunity here for investors, and it will be interesting to see the story play out in 2022.” The Spector of Hybrid Work  To be sure, questions remain surrounding the impact of hybrid work on office demand. However, the majority of corporate occupiers have signaled that the office will remain the center of the work ecosystem. Hybrid work’s net impact on space usage and footprints will be relatively minor. Leasing activity supports this thesis, JLL notes, which nearly surpassed 40 million square feet in Q3 2021 for the first time since the onset of the pandemic and bringing the trailing six-month transaction total almost 40% above the same time period in 2020. Recent sales also drive home the rediscovery of value-add office’s appeal. There was the $155 million sale of Mount Eden Research Park in the Bay Area and the $56.5 million sale of CASA in Phoenix. “The amount of interest we received for Mt. Eden was truly astounding,” said Senior Managing Director Rob Hielscher, JLL Capital Markets. “A combination of value-add and life sciences drove pricing and the number of bids upward in a highly competitive process.” The CASA office sale set a new price-per-square-foot record for Phoenix’s Piestewa Peak submarket.  

Originally published by GlobeSt The single-tenant net lease market and the national multi-tenant retail market will continue to enjoy booming growth as a combination of low interest rates and ample availability of capital make the sectors attractive for investors, according to a new analysis. “Without an increase in rates or a tightening from lenders, this environment will continue to fuel buyer demand,” says Lanie Beck, Stan Johnson Company Director of Corporate Research, Marketing & Communications. She notes that investment sales volume for shopping centers is up an “incredible” 211% year-over-year in Q3, and the overall net lease market reported more than $20 billion in activity in the last three months. Single tenant net lease sales volume hit $20.7 billion, enjoying its sixth strongest quarter on record in Q3, with office clocking in at $7 billion (up 30% from last quarter), industrial hitting $10.7 billion (up 11% from last quarter), and retail posting $3.1 billion (down 31% from last quarter). “The market is well on pace to exceed 2020’s annual sales totals, even if Q4 activity isn’t particularly strong—early predictions put 2021’s estimated annual total around $75 billion, which would make it the second strongest year in history,” Beck says. The overall single tenant net lease cap rate average fell 8 basis points this quarter to 6.01%. When it comes to STNL buyers, 39% are private buyers and US-based institutional investors account for 30% of all activity, on par with 2020 numbers. Around 35% of office buyers are US-based institutional investors, while private buyers account for 39% of industrial deals and 70% of retail sales. Meanwhile, multi-tenant retail sales volume hit $14.3 billion in the third quarter, up 39% from Q2. Sales volume so far this year has already surpassed 2020 totals, and “while it won’t be anywhere near a record-breaking year, there appears to be strong and growing momentum across the sector,” Beck says. Cap rates have stayed stagnant, though there is wide variation across regions. REITs and private buyers represent a combined 89% of MTR buyers, and the share of REIT deals has increased significantly, going from 3% in 2018 to 40% of the current buyer pool. A lack of inventory continues to plague buyers, particularly with multi-tenant retail, which has faced significant issues over the past few years by a lack of new development. And then there’s the obvious: supply chain issues are presenting challenges for retailers, and the “Great Resignation” is presenting serious labor challenges for employers of all sizes, despite an 18-month low in unemployment. Consumer confidence dropped significantly in the February through April 2020 period and “it hasn’t improved much since then,” according to Beck. However, e-commerce sales as a percentage of total retail sales remain strong and are expected to grow throughout the second half of 2021 as consumers begin holiday shopping early. In addition, “inflation remains a concern for investors and consumers, with CPI rising 5.4% during the 12 months ending in September 2021, Beck says. “Costs are expected to rise for a number of goods and services, further complicating the impact to retailers.”  

  Market data, charts & graphs of current and historical trends across single-tenant office, industrial and retail properties, as well as multi-tenant retail Overall market trends Market summary & analysis Economic data points hbspt.forms.create({ region: "na1", portalId: "7279330", formId: "c1356763-5ba7-47b2-8ff1-6a3dbb18bc75" });   CRE markets show growth and momentum, but industries are impacted by a number of challenges Following the close of the third quarter, both the single-tenant net lease market as well as the multi-tenant retail sector are reporting strong year-over-year growth. Investment sales volume for shopping centers is up an incredible 211 percent from third quarter 2020, while the overall net lease market reported in excess of $20 billion of activity in the last three months, making it the sixth strongest quarter on record. Despite the positive momentum, the market continues to see some lasting effects from the pandemic. Here are a few of the top trends we see impacting the market for the remainder of 2021 and into 2022: Low Interest Rates & Strong Buyer Demand | Rates are low and capital is available, and this has been an attractive combination for investors. Without an increase in rates or a tightening from lenders, this environment will continue to fuel buyer demand. Lack of Inventory | Unfortunately for buyers, there continues to be a lack of available inventory across all product types. Multi-tenant retail, for example, has been impacted in recent years by a lack of new development, while industrial investors are having an increasingly difficult time finding yield. Supply Chain Issues & Labor Shortages | As we approach the holiday shopping season, many retailers are encouraging consumers to start early. Expected delivery delays combined with supply shortages may present challenges for retailers. Additionally, in what some are calling “The Great Resignation,” a high number of employees are leaving the workforce or switching jobs, and employers across all industries are now facing labor shortages. Inflation | Inflation remains a concern for investors and consumers, with CPI rising 5.4 percent during the 12 months ending in September 2021. Costs are expected to rise for a number of goods and services, further complicating the impact to retailers.

Excerpt of article originally published by GlobeSt Sale leaseback deal volume increased in Q2 this year by 93% versus the same period one year ago. On a sequential basis, deal volume was up 17%, according to an analysis by SLB Capital Advisors. According to its managing partner, Scott Merkle, declining cap rates, anticipated tax changes and heightened M&A activity, drove the higher deal volume. Merkle added, “We anticipate the momentum seen in the first half will continue during the second half of 2021.” Investors Open to 5- to 7-Year Terms Robert Poirier, Associate Director, Stan Johnson Company, agrees. He said investor demand for sale leasebacks has improved significantly over 2020 and should continue to do so throughout 2021 as well as into Q1 2022. “Values have surpassed pre-pandemic levels, and in some cases, we’re seeing cap rates more than 100 basis points lower than just 12 months ago,” Poirier tells GlobeSt. “We are also seeing investors become more open to shorter term leaseback periods.” Poirier said that a year to 18 months ago, the average lease term for an industrial sale leaseback, for example, was 12 years. “Today, we’re seeing more investors open to 5- and 7-year terms,” he said. “I’m working on an assignment now that we took to market last year at a 7.20% cap rate. We ended up pulling it off the market temporarily and just brought it back out. We’re receiving offers with cap rates of around 5.75, which is almost a 150-basis point improvement. This example is true testament to current market conditions that, again, I expect will last into early next year.” Industrial Segment Represents 53% of Overall Transactions From a transaction standpoint, SLB Capital Advisors reported that sale leaseback activity increased 17% to 185 transactions in Q2 2021 vs. the previous quarter, reaching $3.6 billion, the second largest transaction count and dollar volume since Q4 2019. “While we witnessed a return to optimism in the retail segment, Q1 and Q2 this year exhibited continued strength in the industrial segment, representing 53% of overall transactions – industrial sale leasebacks continue to demand attractive pricing even in non-core markets,” according to the report. Larger notable deals in Q2 include Benderson Development’s acquisition of the Kroger Co.’s retail properties for $487mm and Gaming & Leisure Properties acquisition of two entertainment locations from Bally’s Corporation for $484mm. Given heightened M&A activity leading into the second half of 2021, SLB Capital Advisors expects sale leaseback activity to follow suit.  

Originally published by GlobeSt Blue Owl Capital has entered into a definitive merger agreement to acquire Oak Street Real Estate Capital and its investment advisory business for $950 million. The transaction is expected to close in the fourth quarter of 2021 and is subject to customary closing conditions. Oak Street is a Chicago-based firm, founded in 2009 with over 35 employees and with $10.8 billion of assets under management as of June 30, 2021. The firm focuses on two primary strategies: structuring sale-leasebacks, which includes triple net leases, as well as providing seed and strategic capital. Market Ripe for Sale Leaseback Transactions “Right now, the market is ripe for sale leaseback transactions, and there are a couple factors pushing the popularity of this category,” Katie Elliott, Stan Johnson Company Associate Director, tells GlobeSt. “What we saw during the pandemic was a flight to safety, with investors seeking security with long-term leases and credit-worthy tenants occupying essential, mission critical assets. Many sale leasebacks fit this category, in particular industrial assets because you can’t manufacture from home, therefore increasing the ‘stickiness’ of a tenant to a location. Elliott said another trend she is seeing in the sale leaseback market is private equity sponsors utilizing real estate as a differentiator in their bids to acquire companies. In 2021, U.S. private equity dealmaking exceeded previous annual records and with the competitive environment, many sponsors are thinking outside the box. “With today’s low cap rates, there is an underlying value arbitrage between the business EBITDA multiple and effective real estate multiple, potentially resulting in millions of dollars of value creation,” Elliott said. “We are still in a low interest-rate environment, and though we are seeing the 10-year treasury begin to creep up, we still expect cap rates will remain stable throughout 2022 due to the dislocation of supply and demand and money pouring into the net lease category.” Oak Street Leadership Team Will Remain in Place Oak Street’s active net lease funds primarily focus on single tenant properties, net leased to investment grade and creditworthy tenants, under long duration leases. The Seeding and Strategic Capital business focuses on investing in early-stage real estate managers across various industry sectors. The platform provides strategic institutional capital to managers typically enhanced by attractive general partnership economics and an active governance role. The platform seeks to work with strongly aligned management teams with leading investment capabilities, oftentimes led and controlled by women and minorities. Upon closing of the transaction, key members of the Oak Street leadership team will remain in place, and Oak Street’s Chicago office will become an additional office for Blue Owl. In addition, Marc Zahr will join Blue Owl’s Board of Directors and Executive Committee.  

Originally published by GlobeSt Easterly Government Properties, a REIT focused on commercial properties leased to the US government, has formed a joint venture with one of the preferred leading global investors. The joint venture will serve as the investment vehicle for the acquisition of an anticipated 1.2 million leased square foot portfolio of 10 properties expected to close on a rolling basis by the end of 2023, which is 100% leased to the Department of Veterans Affairs, for a purchase price of approximately $635.6 million under predominately 20-year firm term leases. Easterly’s partner will retain a 47.0% stake in the JV. Easterly will retain a 53.0% stake in the JV. Easterly will also receive asset management fees from the JV partner and be responsible for the day-to-day management of the properties. The properties are in Chattanooga, Tenn.; Lubbock, Texas; Lenexa, Kan.; San Antonio, Birmingham, Ala.; Columbus, Ohio; Phoenix; Marietta, Ga.; Corpus Christi, Texas; and Jacksonville. Expect More Cap Rate Compression in Essential Assets Brian Corriston, Director in Stan Johnson Company’s Houston office, tells GlobeSt that demand for essential assets “seems to be at an all-time high, and government-leased assets fit that profile perfectly. History has shown, besides the credit backing these leases, these assets have an extremely high rate of renewals. “With the stickiness of a tenant such as the VA, relocating becomes even less likely, and that’s an incredibly attractive characteristic to investors. “One challenge I’ve seen, however, is that non-experienced investors sometimes have difficulty acclimating to the full-service structure of the lease, where the landlord has significant responsibility compared to net lease structures. “But as capital is readily available and interest rates remain low, this sector of the market should remain attractive and strong for the foreseeable future, and I expect we’ll continue to see cap rate compression in 2022, especially compared to pre-pandemic trends.” Easterly Deal Includes Class A, Green Globe Facilities The 100% build-to-suit VA Portfolio consists entirely of state-of-the-art, Class A Green Globe Certified facilities, either recently delivered or under construction. The JV closed on the acquisition of two of the 10 properties in the VA portfolio, which are currently operating. The JV expects to close on the acquisition of the remaining eight properties on a rolling basis by the end of 2023, in connection with construction completion and lease commencement dates. Once delivered, these facilities will be the newest VA medical care centers in six of the 18 Veterans Integrated Services Networks (VISNs), which six VISNs offer critical healthcare services for approximately 7.2 million veterans, or approximately one third of the entire U.S. veteran population. Each new facility will enable the VA to expand its current services in each local market by either replacing smaller existing clinics or supplementing existing facilities with more robust capabilities in a complementary location.  

Excerpt of article originally published by GlobeSt Lanie Beck, Director of Corporate Research, Marketing & Communications, Stan Johnson Company, tells GlobeSt that its preliminary data for Q3 2021 indicates healthy investor activity over the summer for the single-tenant net lease market. Projections put total investment volume for the sector between $14.8 and $16.5 billion for the quarter, which would fall just shy of the quarterly five-year average and look like a near repeat of Q1 2021. Overall average cap rates for net lease assets are likely to compress by a few basis points as they approach the 6 percent-mark, putting the average at an all-time low. “For pricing, the most notable trend we’re watching is within the net lease industrial sector, where cap rates have been in the high-5 percent range for six consecutive quarters now,” Beck said. “Demand for newly built, high-quality distribution properties continues to be incredibly robust as both institutional and private buyers seek out these assets, and the cap rate compression we’re seeing is a direct result. “But supply across all asset classes remains a challenge for investors. The appetite for net-lease investments is growing, and I have no doubt that we’d be seeing higher levels of investment volume if only the supply existed.”  

So far, 2021 has been full of changes. Some have been welcomed, as we’ve begun to see an end to many pandemic restrictions that kept our country halted for over a year, while other changes could impact us for years to come. Currently, there is proposed legislation that could dramatically limit 1031 exchange transactions, or like-kind exchanges. The legislation, as originally outlined, institutes a tax deferral cap of $500,000 on like-kind exchanges, which could have a significant impact on investors if passed. In the coming weeks and months, we expect this issue to be heavily debated, and it’s possible the future of 1031 exchanges could be unclear for some time. Since it was first introduced in the 1920s, corporate and individual real estate investors have made use of Section 1031 of the U.S. tax code. It allows investors to defer taxes on capital gains by exchanging the sale proceeds and retired debt of real property into like-kind assets. Businesses that make use of 1031 exchanges span from hospitality and leisure companies to natural resources and mining companies, with many industries in between. The use of 1031 exchanges spans across our entire nation into many industries and impacts millions of individuals, directly and indirectly. "There is proposed legislation that could dramatically limit 1031 exchange transactions, or like-kind exchanges" According to a May 2021 report published by Ernst & Young, 1031 exchanges are estimated to support more than 568,000 jobs, providing approximately $27.5 billion in labor income and are expected to generate $55.3 billion in overall value to the U.S. economy in 2021 alone. Because of 1031 exchanges, small businesses that would otherwise not be able to afford expanding to a larger facility, for example, are able to grow their businesses and create jobs. Additionally, many 1031 exchange transactions involve generational properties which would not trade hands if it weren’t for the tremendous incentives and benefits offered by 1031 exchanges. Without this incentive, the market would likely become far more stagnant with fewer assets changing hands. Although this is hardly the first time 1031 exchanges have been threatened, there is perhaps more cause for concern in today’s climate, as the current political alignment in Washington makes it easier to get bills passed. However, leaders on both sides of the aisle understand the benefits provided by 1031 exchanges, and that dynamic will undoubtedly influence the final outcome. The bill, as it was originally proposed, is not specific about how changes to 1031 exchanges will be implemented if it does pass. Modifications to that section of the legislation, as well as the bill as a whole, are likely to occur prior to it being voted on. During this time of uncertainty, investors and real estate professionals alike are voicing their concerns and urging leaders to understand the importance of 1031 exchange transactions to the U.S. economy. "Although this is hardly the first time 1031 exchanges have been threatened, there is perhaps more cause for concern in today’s climate, as the current political alignment in Washington makes it easier to get bills passed. " Until more is known, investors are encouraged to stay the course. Long-term investing goals should not be abandoned, but investors must also be aware of outstanding opportunities available in today’s marketplace. While tax deferral benefits provided by 1031 exchanges are an excellent motivator for many investors, we shouldn’t lose sight of all the other benefits that come with real estate investing.   hbspt.forms.create({ region: "na1", portalId: "7279330", formId: "b1759ef4-8bfd-43d8-b940-5891e7847eeb" });

Market data, charts & graphs of current and historical trends across single-tenant office, industrial and retail properties, as well as multi-tenant retail Overall market trends Market summary & analysis Economic data points   hbspt.forms.create({ region: "na1", portalId: "7279330", formId: "4108bcfc-48b0-46b3-8ca1-e757b957c3e2" });   Constrained supply suppresses investment volume across STNL market and multi-tenant retail sector The single-tenant net lease market had a near repeat performance in second quarter 2021, barely outpacing first quarter’s sales activity. With $16.5 billion reported in the last three months, sales volume increased a meager 0.4 percent. This quarter-to-quarter consistency bodes well for a recovering market, yet many were hopeful we’d witness a noticeable uptick in activity as mid-year approached. The multi-tenant retail sector, on the other hand, didn’t fail to deliver. Despite activity remaining stunted from pre-pandemic levels, we saw a 54 percent quarter-to-quarter increase in sales, as the sector reported more than $9.1 billion in total volume for second quarter 2021. For the single-tenant net lease market, as well as the multi-tenant retail sector, constrained supply continues to be a significant influence on investment sales activity. Buyer demand is substantial, but the amount of supply available continues to be extremely low. Off-market sales are prevalent and the listing timeline for the highest quality assets is often much shorter than the historical average. As we enter the second half of the year, market conditions are unlikely to change drastically. The low interest rate environment continues to motivate buyers, but without an uptick in available supply, investor demand simply can’t translate to increased market activity.            

Stan Johnson Company, one of commercial real estate’s leading investment sales brokerage firms, has arranged the sale of a Class A, 70,876-square-foot office building located at 1876 Waycross Road in Cincinnati, Ohio. The single-tenant facility is newly leased to Liberty Mutual Insurance Company, a diversified global insurer and industry-leading provider of property and casualty insurance. Stan Johnson Company’s Brad Pepin exclusively represented the Lincoln, Nebraska-based seller, Ameritas. The buyer was NRED, a vertically integrated operating and investment firm headquartered in Leawood, Kansas. “We were proud to represent Ameritas in the sale of this attractive asset,” said Pepin, Senior Director and Partner in Stan Johnson Company’s Tulsa, Oklahoma headquarters. “This investment offering was well-received, allowing us to generate several offers by many qualified buyers during an uncertain time in the office investment marketplace. The aggressive pricing achieved was commensurate to the attractive creditworthiness of the tenant, the quality lease terms and the excellent Cincinnati office submarket. This will be an outstanding investment for the buyer for many years to come.” Located in the Carillon Business Park, the property was originally built in 2015 with new tenant improvements finished in 2021. Liberty Mutual relocated to the property earlier this year from an existing facility in nearby Fairfield, Ohio. The new office facility will house hundreds of employees and provide better efficiency for the organization. The office includes a mix of employee flex space and features unassigned seating for remote employees as well as different types of collaboration space. About Ameritas®: Ameritas is a marketing name for Ameritas Mutual Holding Company and its affiliated subsidiary companies, including Ameritas Life Insurance Corp. and Ameritas Life Insurance Corp. of New York. Founded in 1887, Ameritas offers a wide range of insurance and financial products and services to individuals, families and businesses. These products and services include life insurance; annuities; individual disability income insurance; group dental, vision and hearing care insurance; retirement plans; investments; asset management; and public finance. Securities offered through affiliate Ameritas Investment Company LLC., member FINRA/SIPC and investment advisory services offered through the business name of Ameritas Advisory Services. For more information, visit ameritas.com.

The proposal to curb Section 1031 of the U.S. tax code is receiving a lot of attention from commercial real estate investors. Commonly known as 1031 exchanges or like-kind exchanges, Section 1031 trades account for up to 20 percent of all commercial real estate transactions, according to a recent study by experts at the University of Florida and Syracuse University. In just the net lease sector, we have estimated that somewhere between 55 and 70 percent of transactions each year could be 1031 exchanges. Large and small investors alike rely on the 100-year-old provision which provides property investors with a tax deferral on the gain from a sale contingent upon the satisfaction of a number of conditions – the primary one being that the sale proceeds are used to purchase a like-kind investment within 180 days. Proposed legislation, however, could severely limit the current policy by allowing only gains of up to $500,000 for individuals and $1.0 million for joint filers to be eligible for deferral in any single tax year. This proposed limitation could have a material impact on commercial real estate transactions if adopted, but we encourage investors to evaluate future strategies based on their particular goals and situations, as real estate investments will continue to provide investors with benefits that go well beyond Section 1031 considerations. Here are a few benefits that investors should keep in mind amid the uncertainty of future tax policy: Predictable Cash Flow | Investment properties can generate steady monthly income. In turn, that provides owners with significant financial flexibility. Depending on their strategy or situation, investors may live off the cash flow, use it to pay down debt, invest in other assets or save it. Appreciation | Real estate often increases in value over time and can provide a substantial payout upon a sale or refinancing, particularly if an owner improves a property and increases its net operating income. Appreciation also strengthens equity in properties, which in turn enhances the net worth of owners. Residual Value | In some cases, a property’s value may fall over time. A long-term lease may expire, for example, or a tenant may go out of business. Still, unlike stocks, which can lose 100 percent of their worth, the building and underlying land does retain some value. Diversification | Investment properties can play a critical role in portfolios geared toward maximizing returns and minimizing risk. Real estate tends to show much less correlation to the day-to-day volatility – and the significant periodic disruptions – inherent in the stock and bond markets. Net lease properties in particular are viewed as stable investments that exhibit less risk relative to other assets. Inflation Hedge | The U.S. is experiencing the biggest spike in inflation in years across a broad number of categories, including food, energy and commodities. But hard assets, like real estate, tend to keep pace with rising prices and maintain their intrinsic value. The proposed legislation looking to limit Section 1031 as it is written today is certainly a concern and merits attention if and when it comes before lawmakers. But investors should not allow a single policy to fully guide their investment decisions. With or without a change to Section 1031, savvy investors will continue to choose investment properties for their risk-reward profile, portfolio diversification qualities and other appealing characteristics and benefits when compared to other asset classes and investment alternatives.   hbspt.forms.create({ region: "na1", portalId: "7279330", formId: "56bacb0e-b23c-4f61-8892-3e9d44cfdf80" });