Originally published by Wealth Management The corporate sale-leaseback market is coming off a record-high first quarter for deal-making. Despite repricing occurring in the wake of rising debt costs, industry insiders remain optimistic of continued strong momentum ahead in the remainder of the year.  The $8.4 billion in sales logged in first quarter is on par with fourth quarter 2021 activity and nearly triple the $2.9 billion in transactions recorded in the first quarter of 2021, according to a market analysis by SLB Capital Advisors. “That is the biggest first quarter that we’ve seen. The dollar volume was driven largely by two casino deals, but the 186 is the highest count that we’ve seen over the last few years by a good 20 to 30,” says Scott Merkle, managing director of SLB Capital Advisors.  The casino transactions included VICI’s acquisition of the Venetian Resort, Expo and Convention Center for $4 billion and GLPI’s acquisition of two Cordish Companies’ Live! properties for $674 million. Merkle also attributes activity to the huge volume of M&A activity that occurred in 2021.  Traditionally, companies use sale-leasebacks as a financing tool to monetize or “unlock” 100 percent of the equity tied up in real estate. That capital is often used to reinvest back into the business, improve balance sheets or finance expansion. Another catalyst for sale-leasebacks is M&A activity, with the acquiring entity using a sale-leaseback on the real estate of the business they are buying to help finance the acquisition. According to BMO Capital Markets, the U.S. saw 478 M&A transactions last year that were valued at nearly $1.9 trillion.  “A lot of times what we see on the M&A side is groups that will utilize that sale-leaseback as part of the capital stack, and there was an incredible amount of M&A activity last year,” says Jeff Tracy, a director at the Stan Johnson Co. in Tulsa, Okla. A sale-leaseback of the real estate can bring in 20 to 30 percent of the overall capital stack needed, which helps to reduce the amount of equity and/or debt a buyer needs to bring to the table, he adds.  Some industry experts estimate that industrial assets represent nearly half of all corporate sale-leaseback transactions, and expansion of the industrial sector over the past few years has provided fresh inventory for eager buyers. “Our business has never been more brisk. We are seeing a lot of activity as corporate users continue to look to monetize their industrial real estate and corporate-owned facilities, because they realize it’s a better use of funds to be able to put that capital to work within their business,” says Erik Foster, a principal and head of industrial capital markets, Capital Markets at Avison Young in Chicago.  Market adjusts to higher rates  The broader market is adjusting to higher costs of debt financing for real estate, which has climbed 150 to 250+ basis points since January 1. Although sources agree that rising interest rates haven’t changed the volume of sale-leaseback deals that are getting done, it is resulting in price adjustments and fewer bidders. “As debt has gotten more expensive, buildings can’t sell as aggressively as they did a couple of months ago,” notes Foster.  On average, cap rates have increased between 25 and 75 basis points, depending on the building, location, tenant and term. “The better locations and better credits are going to be less impacted, because there is a significant amount of capital still out there that is chasing deals,” says Tracy. The smaller or more challenging credits and tertiary locations are seeing bigger moves in cap rates, he adds.  Although there is still significant capital targeting sale-leasebacks, the bidder pool has thinned with some investors that have pushed pause amid the repricing that is occurring. Instead of getting 10 offers, a sale-leaseback listing might get six or seven now, because buyers are being more cautious, notes Merkle. SLB Capital Advisors is currently working on a sale-leaseback of an industrial portfolio valued between $75 million and $100 million. First round offers came in during the first week of April with nine groups that advanced. Typically, buyers increase their offers when moving to the second round. However, due to the rise in interest rates, many moved in the opposite direction, lowering their price. The deal is under LOI and moving forward, but the pullback on bidding speaks to how buyers are moving more cautiously, notes Merkle.  Stan Johnson Co. is working on the sale-leaseback of a portfolio of properties for a recreational vehicle business. One of the bids received was structured with a floating cap rate. The bidder included a cap rate range that allowed the seller to choose the rent level they wanted to set, as well as a fixed basis point spread over treasury to account for rate fluctuations.  So, depending on how rates moved prior to the deal closing, the cap rate also could move. “That is something I haven’t seen before, and I think it points to the fact that groups still have a desire to get deals done and they need to deploy capital. But they’re trying to be creative as possible in not only making sure they are competitive, but also protecting themselves from a downside scenario of a big interest rate move,” says Tracy.   Avid buyer interest  Rising interest rates could cool what has been a white-hot seller’s market for sale-leasebacks over the past year. However, industry participants are still optimistic about the near-term outlook. “While cap rates have risen, real estate is still at incredibly attractive levels for owner-operators to monetize their real estate in a sale-leaseback,” says Merkle. When one looks at sale-leaseback from a multiple perspective, multiples on real estate that might have been 15x are now 14x. Those numbers are really compelling for a business to execute a sale-leaseback when their business is worth multiples of say 8-10x, he adds.  SLB Capital Advisors has seen an uptick in pitch activity, inquiries from companies considering a sale-leaseback on assets, in recent weeks. “So, in spite of the pricing environment shifting rapidly over the past 45 days, we’re still in an environment where there is a ton of activity, and I expect to see a lot of continued sale-leaseback activity through the balance of the year,” says Merkle.  Another reason for that optimism is that there is still a significant amount of investor capital aimed at sale-leasebacks. “The buyer pools are more diverse and deeper than I have ever seen in my career, and that continues to put pressure on pricing and provides owners with great liquidity options,” notes Foster.  W.P. Carey Inc. alone recently announced that it had entered into $400 million in new investment agreements since the end of first quarter. The net lease REIT specializes in corporate sale-leasebacks, build-to-suits and the acquisition of single-tenant net lease properties.  In addition, more investors have entered the sale-leaseback market looking to acquire assets. “There has been a huge wall of capital looking to be deployed into sale-leasebacks. We’ve seen even more buyers step up to the plate over the last 12 months or so,” says Merkle. Some buyers are moving more cautiously, but there is still a lot of capital available for sale-leasebacks, he adds.   

Excerpt of article originally published by Commercial Property Executive CPE unveils the 20 leading firms overall—plus the top performers for investment and leasing—in our latest annual ranking.  Exceeding Expectations  Despite suffering setbacks during the pandemic in 2020, commercial real estate transaction volume rebounded in 2021 and exceeded expectations. Our survey respondents reported strong levels of investment sales activity, with a combined volume of over $951 billion in 2021― up from $484 billion in 2020 and $630 billion in 2019.  Even in the face of looming rate hikes, the outlook for commercial real estate investment activity remains positive for 2022, as investors will likely continue to be driven towards property asset types boasting strong underlying fundamentals.  While the industry remains optimistic for 2022, our 2022 Most Powerful Brokerage Firms ranking highlights the top firms to watch.  Methodology Commercial Property Executive‘s rankings of the Most Powerful Brokerage Firms are based on self-reported data from all firms. We used a weighted formula, considered various factors including a firm’s performance in 2021 and previous years, and reviewed data that reflects investment sales and leasing activity. The rankings represent what we feel is a logical balance between firm growth and market share. Ranking factors are not limited to the data that appear on this page. 

Originally published by The Wall Street Journal Commercial real estate is showing the first signs of cooling in more than a year, disrupted by rising interest rates that are already causing some deals to collapse.  Property sales were $39.4 billion in April, which was down 16% compared with the same month a year ago, according to MSCI Real Assets. The decline followed 13 consecutive months of increases.  Hotels, office buildings, senior housing and industrial properties recorded big drops in sales. Sales of other property types, such as retail and apartments, rose in April, but analysts and brokers said activity may be now slowing in those sectors, too, as rising interest rates keep some investors from making competitive offers.  In March, total commercial property sales had risen 57% from the same month a year before.  “To have it go from a very fast pace of growth the month before—the speed of that transition is shocking,” said Jim Costello, chief economist at MSCI Real Assets. A drop in sales can be an early indicator of stress in real-estate markets because prices are usually slower to change, he added.  After an early-pandemic scare in which sales of most types of commercial real estate declined, commercial property sales began rebounding in late 2020. Low interest rates and strong demand, especially from multifamily and industrial tenants, fueled property sales throughout 2021 and into this year.  Now, with interest rates considerably higher—the yield on 10-year Treasury notes, a common benchmark for commercial mortgages, has nearly doubled this year—property investors that rely on large amounts of debt have been some of the first ones to fall out of the market, brokers and investors said.  In some cases, investors are finding that with the increased cost to borrow, their near-term rate of return runs below the interest rate on their mortgage. Lenders, in turn, are now tightening their standards for more-speculative deals, brokers said.  In certain sectors, such as smaller industrial and retail real estate, prospective buyers that wrote letters of intent to purchase properties weeks ago are now dropping their bids because the cost to borrow has risen so quickly, said Joshua Campbell, a senior vice president at Stan Johnson Co., a commercial real-estate brokerage.  “That was not happening two to three years ago,” Mr. Campbell said.  Other investors are walking away from deals already in contract. Innovo Property Group recently backed out of an agreement to buy a Midtown Manhattan office tower for $855 million after surging interest rates made it harder to find a mortgage, according to a person familiar with the matter. The about-face meant the investor lost its $35 million deposit, according to another person involved in the deal.  Surging interest rates in recent weeks have left many investors with a choice between losing their deposit or paying much more than expected for their mortgage, said Jay Neveloff, a partner at law firm Kramer Levin Naftalis & Frankel LLP.  Most have been moving ahead with planned purchases, he said, but other investors are more cautious now about signing new contracts. That will inevitably drive down prices. “The pricing can’t be blind to changes in capital markets,” Mr. Neveloff said.  As the buyer pool narrows and interest rates rise, sellers are becoming more likely to make concessions to close deals, said Henry Stimler, an executive in the multifamily capital-markets division at the Newmark real-estate firm.  His firm recently brokered the sale and financing of a $457.5 million multifamily portfolio concentrated in the Carolinas, where rent growth has been strong over the past year.  “It’s now turning into a buyer’s market,” Mr. Stimler said.   

Originally published by Commercial Property Executive A volatile stock market combined with rising interest rates and inflation have yet to disturb capital pouring into net lease properties. The passive income strategy, invariably explained as a bond wrapped in real estate, provides investors with long-term credit tenants that are largely responsible for all of a property’s expenses, including real estate taxes, insurance and maintenance.  Public and private investors alike continue to plow capital into net lease assets to eek-out a return in what for the last several years has been a low yield environment. Coming out of 2021, in which industrial assets accounted for half of the $103 billion in record annual sales, single-tenant net lease deals in the first quarter of 2022 totaled nearly $21.7 billion, a year-over-year increase of 30 percent, according to Stan Johnson Co., a Tulsa, Okla.-based net lease brokerage.  Unsurprisingly, industrial asset sales drove the lion’s share of the first quarter business at $11.4 billion. Office and retail accounted for $6.9 billion and $3.3 billion, respectively.  Nationally, the average cap rate for net lease industrial properties dropped 17 basis points to an average of 6.6 percent in the first quarter this year from the fourth quarter last year, while office and retail cap rates experienced smaller declines to 6.7 percent and 5.75 percent, respectively, according to the Boulder Group, a net lease brokerage based in suburban Chicago.  For much of 2021, the benchmark 10-Year Treasury yield was below 1.5 percent, and interest rates for long-term debt were between 3 percent and 4 percent for many conventional net lease deals. That environment has dramatically changed since the end of 2021. Now interest rates are roughly 100 basis points higher, following the 10-Year bond yield’s spike of some 140 basis points to more than 2.9 percent. So far, demand for net lease properties hasn’t slowed, even following the Federal Reserve’s 50 basis point hike of the federal funds rate in early May.  “Buyers are starting to point out that interest rates are rising, but the rates aren’t full factored into the market yet,” said Jonathan Hipp, head of the U.S. Net Lease Group at Avison Young in Washington, D.C. “Quality assets with quality tenants in quality locations are still trading aggressively.”  Capitalization rates are supposed to adjust upward with such an interest rate move, although with a time lag. But observers suggest that buyers waiting for a substantial move in cap rates are likely to be disappointed.  “The correlation of interest rates and cap rates is not 100 percent, and investment demand and supply are so out of balance that cap rates won’t move as far as investors would like,” said Randy Blankstein, president of the Boulder Group. “I think there is going to be a minor adjustment to cap rates for office and retail. But industrial property cap rates may continue to compress, even in a potentially rising rate environment, because industrial remains the darling of all the sectors.” Market in Transition  It wasn’t that long ago that lenders had interest rate floors because treasury yields were so low. But with the coincidental rise in treasury and interest rates, lenders and borrowers are readjusting to the market. In some cases, that means borrowers must decide whether to accept a lower cash-on-cash return or return funds to limited partners. At the same time, lenders need to deploy debt to meet their 2022 allocation targets.  “I haven’t come across any lenders that are pulling back, especially on industrial and medical office deals,” said Nicole Patel, first vice president of Four Pillars Capital, a Dallas-based mortgage banker launched by Stan Johnson in 2021. “Demand is so high right now that I can’t imagine cap rates moving. So either lenders are going to have adjust their underwriting to support current cap rates, or borrowers are going to have to be comfortable bringing more cash to the table.”  Lenders that were providing debt for 70 to 80 percent of an asset’s value a few months ago have generally dropped leverage to 60 to 70 percent, observers say. But the amount of debt a borrower receives, as well as the interest rate, also depends on location, whether the surrounding market is declining or growing economically, the strength of the sponsor, and whether a lender is over or under its allocation for a particular product, among other variables, said Ben Reinberg, CEO of Alliance Consolidated Group of Cos., a Chicago-based real estate investment firm that owns more than $350 million in medical properties.  “Lenders are hedging right now,” he said. “They want to deal with experienced borrowers who understand debt coverage requirements and don’t overleverage their properties. But for the right deal, there is real demand to finance net lease properties.”  The fact that plenty of all-cash institutional and high-net-worth individuals buyers are active in the market is likely helping to keep downward pressure on cap rates, Hipp suggested. Although they can tick up significantly between the signing of a letter of intent and closing, interest rates have yet to sour any deals on which he’s working. At the moment, he’s not too worried if they do become an issue.  “I wouldn’t advise a seller to raise his cap rate 100 basis points to make a deal with a particular buyer work, because with the amount of capital that’s driving the market, I think there’s an all-cash buyer or someone else out there who would be able to close,” he said. “If you need debt to win the competition for an asset, that might put you at a disadvantage.”  Inflation Influence  In addition to rising interest rates, inflation is beginning to emerge as a concern for some net lease investors. Notably, rent increases built into leases may not keep up with inflation, which spiked 8.5 percent in March, the biggest annual jump in 40 years. Plus, long lease terms associated with net lease assets prevent landlords from quickly adjusting rental rates to market conditions in the same way that owners of apartments and hotels can.  Given the opportunity, net lease buyers are looking to secure healthier rent hikes going forward. Alliance Consolidated, for example, is pushing for a 3 percent annual increase in sale-leaseback transactions, and it may pay slightly more for an asset to achieve it, Reinberg said.  While some net lease agreements tie rent increases to the consumer price index, they are typically capped at around 2 percent annually. But many net leases today feature fixed annual rent increases, also of about 2 percent. Thus, continued high inflation could dramatically curb interest in the sector as the economics of deals become infeasible.  “Buyers have become hyper-focused on rent bumps and escalations in existing leases,” Blankstein said. “People want to make sure that they’re protecting the buying power of their cash flow streams.” 

Stan Johnson Company, one of commercial real estate’s leading investment sales brokerage firms, has completed the sale of 6850 West 52nd Avenue in Arvada, Colorado for just over $3.0 million. The 28,492-square-foot Class B, multi-tenant office building was purchased by a Louisiana-based private investor represented by Craig Tomlinson of Stan Johnson Company. The seller was an individual investor based in Washington.  “Multi-tenant office is alive and well in markets like Denver,” said Tomlinson, Senior Director and Partner in Stan Johnson Company’s Tulsa, Oklahoma headquarters. “Our client is typical of those who are on a relatively safe strategy to achieve long-term appreciation.”  The two-story office building was built in 1998 and is situated on 2.6 acres. Building tenants include HomeGuard Services and Venture Financial, among others, and the property was approximately 91 percent leased at the time of sale. The site features convenient access to Interstates 70 and 76, and the property is located less than 10 miles from downtown Denver. 

Sale leaseback transactions have gained popularity in recent years as owner occupants look to extract the value of their real estate in order to free up capital. But beyond the motivations that drive traditional sale leasebacks, many business owners have found success leveraging this transaction type to fund M&A activity. Franchisees are the primary actors exploring these creative avenues, and while a sale leaseback could be used to fund M&A needs across nearly all asset classes, the most frequent property types involved are quick service restaurants, convenience stores and car washes. These property types are often owned and operated by franchisees with growing portfolios of multiple assets, and M&A activity is commonplace. One Seller, Two Buyers and a Broker So, how does this actually work? In an M&A sale leaseback, you typically have four players: the franchisee seller of the business and assets, the franchisee buyer of the business and future tenant of all properties involved in the sale leaseback, a real estate investor who buys the real estate assets, and a broker that facilitates the transaction.  "Sale leaseback transactions are a common vehicle for owner occupants to extract value from their real estate, but this creative solution is gaining popularity with franchisees as they expand through mergers and acquisitions." To start the process, the franchisee seller and franchisee buyer identify each other and enter into an agreement for the operations and real estate. A broker enters the conversation early on as well. They need to evaluate the sale leaseback of the real estate component and this analysis often influences the terms of the agreement between franchisees. Additionally, the broker helps to identify a real estate investor. At the close of the transaction, two events occur: one franchisee purchases the business assets and assumes the franchise agreements and third-party leases, and at the same time, concurrent with closing, the franchisee buyer executes a long-term triple net lease with the real estate investor.  In this type of transaction, proceeds from the sale of the real estate are transferred from the investor to the franchisee seller, while proceeds from the sale of the business come from the franchisee buyer. The new investor now has guaranteed income coming from their tenant in the form of a long-term lease. That lease typically features attractive terms including a triple net lease structure – making the tenant responsible for all taxes, insurance and maintenance costs – along with regular rent increases and lease extension options.    A Creative Solution to Fund Growth This creative funding solution may appeal to many candidates, including those interested in limiting their exposure to real estate and minimizing or helping to bridge the typical 25 to 30 percent cash equity need required to complete a transaction. A company may view the cash flow of their business as more valuable than the static return of owning the real estate. They may be in a rapid expansion mode and unable to tie themselves to multiple loans or the contingencies that come with them. This solution also works well for emerging franchisees that aren’t sitting on a surplus of cash or those that don’t have an established lending relationship necessary to complete larger transactions. For this type of candidate, there are real estate investors that have extensive experience helping smaller franchisees grow into larger companies. They will not only buy the first round of real estate but will subsequently help fund new acquisitions, work with the franchisee on upcoming capital expenditures and open up more opportunities for acquisitions than the franchisee would have if they were simply relying on their franchisor and brokers.  Low Inventory, High Demand Creates Ideal Environment As we approach mid-year 2022, market conditions are ideal for these transactions, and franchisees considering this strategy are encouraged to act. Inventory is low and demand for sale leasebacks continues to be incredibly high, but today’s market uncertainties could shift the environment quickly. Inflation, rising interest rates, continued cap rate compression especially in the net lease retail sector, supply chain issues, labor shortages – these factors all have the ability to influence market dynamics, and franchisees considering this creative funding vehicle are urged to watch the market.     To download a copy of this report, please provide the following information: hbspt.forms.create({ region: "na1", portalId: "7279330", formId: "f465878d-b7b5-4a74-ace8-549108cb50cf" });

Excerpt of article originally published by GlobeSt Capital poured into the booming single-tenant net lease sector in the first quarter, with sales volume up 30% year-over-year.   According to recent research from Stan Johnson Company, the STNL market reported activity at around $21.7 billion. Over the last three months, the sector saw “negligible” movement in the overall cap rate, which moved down 3 bps to 5.84%.  “Following a record-setting 2021 with unprecedented levels of investment sales activity in the final quarter of the year, there was no expectation that the single-tenant net lease market was positioned for back-to-back quarters of such volume,” Stan Johnson Company analysts note in a report on the Q1 data. “Instead, predictions called for just enough carried momentum to position the market well enough to have a respectable follow-up year. Despite current headwinds—with inflation raging and interest rates rising—the market delivered on those predictions for the most part.”  The firm says “it is highly unlikely and perhaps even impossible” that this year will see activity surpassing 2021 levels, but “we had a healthy start.”   The industrial sector drove most investment activity and accounted for more than half of the quarter’s overall total.  Office also logged $6.9 billion in total, thanks largely to Google’s purchase of a single-asset Manhattan office building last year.  “Even without the Google transaction, the single-tenant office sector would have come close to meeting its historic average, indicating investor confidence has rebounded from the height of the pandemic when the future of office use was much more uncertain,” the report states.  Single-tenant retail had the most significant decline quarter, down 66% from Q4 numbers but more in line with demand levels Stan Johnson Company analysts say they’ve seen in recent years. Meanwhile, multi-tenant retail logged $14 billion in sales in the first quarter amid rising investor demand.  Private investors led activity and accounted for 36% of the buyer pool, followed by US-based institutional investors and REITs, at 25% and 23% respectively. 

Originally published by GlobeSt Asking prices across CRE sectors ticked up in March for those properties listed on Crexi’s database, with the average asking price per square foot rising 2.72% month-over-month.  Cap rates compressed by 0.14% over the same period across asset classes, while occupancy rates picked up a 1% gain.  New inventory also increased by 19.7% in March over February numbers, while office and retail assets showed “promising gains” in prices and tenant occupancy.  “Among the asset types most heavily impacted by the pandemic, office and retail saw promising signs of prosperity in March,” Crexi analysts wrote in a report dissecting the March data. Office assets increased by 6% month-over-month, with occupancy increasing 2% in the same period. And “shopping and other retail subcategories are back in full swing, with owners confident enough in their properties’ values to begin listing them on the market,” with retail assets posting a 1.9% increase in average asking prices and hitting 90% average occupancy for new listings.  Crexi also noted a 27% gain in shopping center inventory in March over February numbers. Asher Wenig, Stan Johnson Company Senior Director & Partner, previously told GlobeSt that shopping centers “are making a great comeback,” with increased demand from institutional and private investors as retailers continue to announce expansion plans and consumers flock back to physical retail.  Multifamily also saw a slight pricing correction on Crexi’s database last month, with the average asking price dropping 4.24%.  The firm observed a large number of smaller multifamily parcels hit the market with less available square footage. But despite the pricing drops, sellers seem as confident in their multifamily property values as ever, with a noticeable reduction in unpriced listings,” Crexi notes.  Overall asking lease rates on Crexi also showed their third consecutive month of decline, down 1.89% from February for all asset types. But special purpose properties like RV parks, self storage and historic buildings saw a nearly 7% gain month-over-month.  Houston also remained the most-searched metro on Crexi by both prospective buyers and tenants, followed by Dallas and Miami.  Los Angeles showed the most gains in search volume last month, up 13.1% over February numbers. 

  Market data, charts & graphs: current and historical trends for 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: "d5cea127-0985-4756-8591-d452dc67de3a" });   Following a record-setting 2021 with unprecedented levels of investment sales activity in the final quarter of the year, there was no expectation that the single-tenant net lease market was positioned for back-to-back quarters of such volume. Instead, predictions called for just enough carried momentum to position the market well enough to have a respectable follow­up year. Despite current headwinds - with inflation raging and interest rates rising - the market delivered on those predictions for the most part. It is highly unlikely and perhaps even impossible that we'll see 2022's activity reach or surpass the nearly $103 billion reported last year, but we had a healthy start. Overall, the net lease market reported approximately $21.7 billion in sales volume during first quarter 2022. While it's a decrease of about 50 percent quarter-to-quarter, this was a very strong showing of above average quarterly volume which points to continued buyer demand. By sector, the industrial net lease market continued to drive the bulk of investment activity, contributing $11.4 billion, or more than half of the quarter's overall total. The office sector, powered by Google's high-profile purchase of a single-asset Manhattan office building for a reported $1.9 billion, logged nearly $6.9 billion in total. Even without the Google transaction, the single-tenant office sector would have come close to meeting its historic average, indicating investor confidence has rebounded from the height of the pandemic when the future of office use was much more uncertain. The single-tenant retail sector experienced the most significant quarter-to-quarter decline in activity, with just $3.3 billion in sales. Down approximately 66 percent from fourth quarter 2021, activity in the retail sector fell more in line with demand levels we've seen in recent years. The multi-tenant retail sector is coming off a strong year as well, although 2021 wasn't record-setting Still, with nearly $14.0 billion in sales reported for first quarter 2022, investor demand has grown substantially since the pandemic began and the last 12 months of activity has been incredibly encouraging for the sector.  

While the state of Ohio may not be top of mind as a major real estate investment center, there are many reasons why investors should keep an eye on net lease assets and opportunities across the Buckeye State, and specifically within its capital, Columbus.  With 11.7 million residents and 2.3 percent growth during the last decade, Ohio is the nation’s seventh most populous state. Ohio has attracted new residents with its low cost of living that is approximately ten percent lower than the national average and housing prices that are comparatively low as well. The state boasts good schools and prestigious universities, as well as a thriving economy that also ranks seventh in the nation.  Business is Booming When it comes to business, the state is ranked fifth for Fortune 500 companies and is home to 25 firms, with more than half located in Columbus alone. Columbus’s economy is hugely diverse, offering employment opportunities across major industries such as technology, finance, healthcare and education. Among the companies that operate their headquarters or have significant employee counts in the area are Nationwide, J.P. Morgan Chase, Honda, Big Lots, Wendy’s and Huntington Bank, among others. "Columbus is ripe with opportunity for net lease and commercial real estate investors…new construction is robust, and the existing supply of second-generation investment properties is also abundant." In recent months, a startup company, Staq Pharma Inc., announced plans to build a $50 million facility in Columbus and create 300 new jobs. Intel also recently announced plans to open two new factories in a rural area east of Columbus with an initial investment of more than $20 billion and a long-term investment that could exceed $100 billion. This is the single largest commitment by a private-sector firm ever announced in Ohio, and a total of 10,000 jobs – both permanent and construction-related – are expected to be created in the short-term. The economic impact of an announcement like this will be substantial, and the area will benefit from additional population growth in the coming years – not only from Intel, but from all the supporting suppliers and businesses this mega-site is sure to attract.  With this growth comes the need for housing, and residential developers as well as multifamily investors will see new opportunities generated. Retail will soon follow as an influx of residents will need access to grocery stores, restaurants, shops and entertainment. Net lease investors will be quick to pursue newly built banks, car washes, dollar stores and drugstores, self-storage facilities, drive-thru restaurants and strip centers that will undoubtedly pop up overnight to serve the fast-growing community. Additional industrial development is sure to happen too, as again, an operation of this size will draw suppliers and manufacturing partners.  Current Growth Areas & Opportunities  As the market waits for these future developments to become a reality, Columbus has plenty of activity already occurring. The bulk of new retail construction is happening in suburban areas including New Albany to the northeast, Dublin and Hilliard to the northwest, and in town along the Interstate 70 and State Route 315 corridors near Grandview Heights. Just west of downtown, two significant projects are in various forms of development. The Peninsula includes office, residential, retail and hospitality space, and the project has already secured several large office tenants including Deloitte and Insight Global. The second development is Gravity, a mixed-use project featuring residential, Class A office space, eclectic retailers and outdoor entertainment and gathering spots. The immediate area along West Broad Street is primed for redevelopment, so as incoming residents spur growth, investors will be able to acquire newly built net lease retail, multi-tenant retail and additional multifamily properties that crop up.  Industrial development has been robust in Columbus as well, with 9.0 million square feet of warehouse space built in the past year and another 15.0 million under construction. Much of the activity is occurring within the Rickenbacker Global Logistics Park. Last summer, a newly built 500,000-square-foot industrial facility leased to Synnex Corporation sold for $31.5 million. The property is strategically located adjacent to Rickenbacker Airport, which is the 27th largest cargo airport in the U.S.  Another corridor of growth and development exists in and around The Ohio State University – one of the city’s largest economic drivers. Located minutes north of downtown, OSU is one of the nation’s largest public universities. It features a huge medical complex and an enrollment count of over 67,000 students. The year-round student and faculty population, not to mention the 24,000 people employed by OSU’s medical center, drive a significant need for multifamily housing, retail and healthcare. And while the university itself may not provide traditional commercial real estate investment opportunities, continued expansion by Ohio State is driving local growth. The areas along High Street and Lane Avenue have seen a resurgence lately, and the CVS Pharmacy at this pivotal intersection traded recently for $7.5 million. The Olentangy River corridor too is seeing new development to support the growing medical complex, as the Wexner Medical Center announced additional expansion in the form of an inpatient hospital slated to open in 2026. Driven by an aging baby boomer generation, healthcare in and around the Columbus area will continue to expand and offer investment opportunities beyond the walls of Ohio State.  A Good Bet for Future Investment Columbus is ripe with opportunity for net lease and commercial real estate investors. New construction is robust, and the existing supply of second-generation investment properties is also abundant. Continued cap rate compression and competition, especially from out of state buyers, maintains a seller’s market for single-tenant net lease investors, and the frothy market is ideal for developers who can sell quickly and move on to the next project. Overall market dynamics may be impacted in the coming months by continued inflation and rising interest rates, but the Columbus market is one area investors can continue to bet on.  hbspt.forms.create({ region: "na1", portalId: "7279330", formId: "ce591be0-0223-48f6-a228-f3aafe246f29" });

Originally published by Wealth Management The net lease property sectors that experienced the biggest increase in sales volume in 2021 were industrial and retail. Industrial sales increased 75 percent over 2019 activity with $37.3 billion in transactions. Net-leased retail volume totaled $18.3 billion in 2021, a 65 percent increase over 2019, according to JLL.  Investor sentiment in WMRE's annual net lease investment research, is tracking with sales activity. More than half of respondents (54 percent) said industrial was the sector in greatest demand from investors, followed by medical office/healthcare at 38 percent and restaurants/fast food at 24 percent. (Respondents were able to select up to three property types.) Those property types least in favor were office and fitness, each at 6 percent, and auto at 7 percent. When looking at the history of survey results, demand for industrial has seen the biggest improvement, jumping from 24 percent in 2016 to its current level. In comparison, drugstores have dropped from a high of 40 percent in 2016 to 20 percent. That decline in sentiment for drug stores could be influenced by the 2021 announcement that CVS would be closing some 900 stores over the next three years.  Coming out of COVID, investors have a strong appetite for “essential” properties, such as grocery stores, convenience stores, quick-service restaurants and auto. What is out-of-favor is anything that is non-essential, such as entertainment venues, movie theaters and gyms. Those businesses are coming back, but they are less desirable to investors, notes Mark E. West, a senior managing director in the Dallas office of JLL Capital Markets, Americas and co-leader of the firm’s national Corporate Finance & Net Lease group.  Following a strategic decision in 2019 to increase its exposure to industrial, Spirit Realty has been an active buyer in both industrial and retail. Although a majority of its portfolio, roughly 70 percent, is retail, acquisitions the company has made over the past 12+ months have been fairly evenly split between industrial and retail. “Not all retail is equal, but we’re still happy with certain parts of retail,” says Ken Heimlich, chief investment officer at Spirit Realty Capital Inc. For example, gyms and fitness centers is a sector that struggled during the pandemic. “We still like fitness, it just has to be the right operator,” he says.  It’s no surprise that industrial topped the list when respondents were asked to rate the 12-month outlook on property sectors. Based on a rating scale of 1 to 5 with 5 being “excellent” and 1 being “poor” industrial rated a 4.1, followed by medical office/healthcare at 4.0 and grocery at 3.8. Those sectors that rated the lowest were office at 2.8, fitness at 3.0 and bank/financial and government each at 3.2.  “Based on structural trends, people believe the future is exceedingly bright for industrial. Industrial throughout the pandemic saw incredible inflows of equity capital into that asset class, and that continues today, which is pushing yields on an unleveraged basis to all-time lows, sometimes into the 3 percent cap rate range, which is really unheard of,” says BJ Feller, a managing director and partner at the Stan Johnson Company.  It also is notable that respondents are more bullish on the outlook for net lease property sectors almost across the board. Views on the 12-month outlook remained the same or moved higher in all but two sectors as compared to the 2021 survey. The two sectors that declined were government leased assets, which dropped from 3.8 to 3.2 and bank/financials, which dipped slightly from 3.3 to 3.2.  Buyer demand for government-leased assets is dependent on the use and branch of government.  Essential government uses such as a VA hospital is going to be more in demand than a generic government office or a post office in a small town, notes West. In addition, there is still good demand for bank branches that have a good credit tenant, such as JPMorgan, Chase and Bank of America. “Buyers want really good locations and they’re going to drill down to the deposit base at that location,” he says. “If those factors are strong, then the asset will trade very strong.” 

Originally published by Dayton Business Journal A large building that houses one of the Dayton area's top employers has been sold for more than $5 million.  Stan Johnson Company, an investment sales brokerage firm, recently completed the sale of a 64,000-square-foot healthcare facility located at 2308 Sandridge Drive in Moraine. The property is fully leased to CompuNet Clinical Laboratories (CCL), a full-service clinical laboratory serving physicians, hospitals and health organizations throughout southwest Ohio.  The deal marks another example of groups targeting Dayton-area commercial properties.  Craig Tomlinson of Stan Johnson Company represented the 1031 exchange buyer — a California-based individual investor. The seller was a private investor based in Dayton. Mark Fornes Realty and CBRE jointly listed the property, which sold for $5.6 million.  “The life science sector has remained a darling of net lease during the pandemic,” said Tomlinson, senior director and partner in Stan Johnson Company’s Tulsa, Oklahoma headquarters. “CCL has been supporting the hospitals and clinics of Ohio for decades. They were a very safe bet.”  The facility was built in 1986 and is situated on more than 5.7 acres in the southern Dayton suburb. CompuNet has occupied this location for more than 35 years, utilizing the facility as a regional diagnostics center, as well as an office headquarters. The site is near Interstate 75, and is in close proximity to Kettering Health’s main campus.  CompuNet is one of the 40 largest employers in the Dayton region, according to DBJ research. It had 940 local employees as of 2021 — a large jump from the 590 people it employed the year prior.  Stan Johnson Company is a commercial real estate brokerage and advisory firm that focuses on investment sales transactions involving retail, office, industrial, healthcare and specialty properties. The firm and its affiliates provide acquisition, disposition, sale leaseback, capital markets and advisory services for institutions, developers, investment funds, corporate occupiers and private investors across the United States.  With a historic focus in the single-tenant net lease sector, Stan Johnson Company is now in its fourth decade of operation and has expanded its service platform in order to better serve clients. The firm has completed more than $40 billion in transactions nationwide, and continues to focus on growth and expansion into other industry sectors and services.