High-Net-Worth Individuals Favor Food/Service Investments, Brokers Say

Originally published by Shopping Centers Today


The volume of retail real estate investment by high-net-worth individuals — who are referred to in the business by the buzzword HNWI — remains strong and steady, despite the triple onslaught of Amazon.com, digital shopping and retailers’ bankruptcy filings.

SCT reached out to three brokers, and they report essentially the same thing: that this volume has kept stable nationwide for the past several years, though with some divergence in 2019.

“The market for HNWI remains extremely robust,” said Ryan Butler, a managing director at Tulsa, Okla.–based Stan Johnson Co. “The trend line seems to be about the same for the past few years. This market has its ups and downs, but, on average, it seems to be about the same.”

The conclusion of Ryan Imbrie, a managing director at SVN Imbrie Realty and chairman of the firm’s retail product council, is concurring. “When I look at the volume of the retail market in terms of sales activity, it is very stable,” Imbrie said. “Peaks and valleys mostly occur when the institutional acquisitions rise and fall.” That said, he noted, “in regard to retail real estate, this year I had one of the best years in a couple of years. I sell shopping centers and single-tenant net-lease, and we have had a blockbuster year.”

The Southeast has seen largely similar trend lines, with some difference for this current year. “HNWI investors have made up around 40 percent of our total retail deal volume going back to 2015,” said Jason Powell, an Atlanta-based senior director with Stan Johnson Co. “Over the past 12 months, that figure is around 36 percent, so we have seen a slight decrease.”

The options for HNWI investors are wide enough: They include shopping centers, 1031 exchange deals and single-tenant net-lease purchases. All levels are still attracting buyers, Butler says, though the single-tenant net-lease market is where many tend to gravitate, and that is because of the price points and the passive nature of that ownership.

Shopping centers, and many industrial and office buildings as well, usually involve bigger dollar amounts, so brokers see fewer HNWIs playing in that arena, observes Butler. “We always say the buyer pool for properties of $1 million is infinite,” he said, “and when you get to $1 million to $5 million, its smaller but still deep. At $5 million, and even more so at $10 million and above, the buyer pool changes to a more institutional makeup as prices rise.”

Some trend lines have emerged recently, says Powell. First, HNWIs are more concentrated on service retail (including food, coffee and fuel) than has been apparent in the past. With regard to single-tenant net-lease, Powell continues to see reasonable deal volume across such categories as discount retailers and drugstores, but the movement to service-oriented retail has increased.

And most of the HNWI investment capital Powell has seen enter the market came from investors selling such multitenant assets as shopping centers and apartment buildings in order to acquire single-tenant net-lease assets, sometimes through 1031 exchange transactions. This is because many of these investors are approaching retirement age and want to liquidate heavy landlord obligations and managerial duties to acquire more-passive investments, with long-term predictable cash flow.

Two recent deals Imbrie’s group completed highlight that trend. “I sold a multitenant retail center with a mix of national and local tenants,” Imbrie said. “We sold it for just over $7 million to an investor in multifamily. This was his first time investing in retail.” In another deal, Imbrie sold a Taco Bell in Birmingham, Ala. “Again, the client sold a multifamily asset, being tired of the tenants and the trash. He bought at a 6 percent cap rate for a property that still had 11 years on the primary terms of the lease. It was a single-tenant net-lease deal.”

Recent deals for Butler reveal the same sort of mix. “We closed on a convenience store in the Dallas–Fort Worth metroplex — a straight purchase, not a 1031, to an HNWI — and we also closed on a four-tenant strip center in Alabama that was to an individual, but this time a 1031 exchange purchase.”

Powell says retail is still the most popular asset class among HNWIs, and for two reasons: For one thing, the price points provide lower barriers to entry. Historically, the typical retail sale has come to somewhere between $3 million and $5 million, for example, versus the typical office or industrial sale of between $15 million and $20 million, he notes. Moreover, individual investors are more familiar with retail, relative to other asset classes. An individual investor is going to relate more to a Starbucks, a Panera or a 7-Eleven, as opposed to some global food manufacturer or parts distributor, observes Powell. Two of his most recent transactions involving an HNWI buyer were for a Dunkin’ Donuts in Athens, Ga., in one instance, and for a Walgreens in Tampa, Fla., in the other.

“In most cases, the investor has been a customer of the retailer,” said Powell, “and/or has seen how the stock was performing.”

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