Trends & Insights

Northmarq investment sales brokers Zach Harris, Senior Vice President, and Mark Grossman, Associate, completed the sale of a single-tenant industrial outdoor storage property leased to H&E Equipment Services, one of the largest integrated equipment services companies in the U.S. The 27,211-square-foot facility is located at 509 FM 359 in Brookshire, Texas. Harris and Grossman represented the seller, a private investor based in Nevada. A Texas-based developer acquired the asset for approximately $5.6 million.  “This was a very successful transaction for all parties involved. The seller achieved their desired proceeds, within a few basis points of ask,” said Grossman. “For the buyer, it was a great opportunity to acquire an industrial outdoor storage property leased to a top equipment rental company on a long-term lease with CPI-based rental increases in their home market.”    The building is situated on 5.22 acres, providing a large yard for storing equipment for rental and sale. The facility is located just off Interstate 10 in a strong and growing industrial submarket on the western side of the Houston MSA. The property was built in 1980 and renovated for the tenant in 2014.  “Our team has had success specializing in the industrial outdoor storage (IOS) and industrial service facility (ISF) asset category,” added Grossman. “This transaction represents another successful closing in this arena and demonstrates the continued demand in the marketplace for strong operators in the IOS/ISF sector.” 

Northmarq investment sales broker Isaiah Harf completed the sale of a 4,403-square-foot retail condo on the ground floor of the Metropole Condominiums located at 1515 15th Street Northwest in Washington, D.C. The property is fully leased to TD Bank, one of the largest banks in the United States. Harf represented the seller, a private investor based in Maryland. The California-based 1031 exchange buyer acquired the asset for approximately $7.6 million.   “This was a very challenging environment to close this transaction in with rising interest rates daily,” said Harf. “In the end, the purchaser pushed through, and we closed in a timely manner.”  The property was built in 2008 and is situated in one of the fastest growing neighborhoods in downtown Washington, D.C., Logan Circle. The property boasts outstanding demographics with over 416,000 residents with an average household income of over $157,000 within a three-mile radius. Neighboring national retailers include Whole Foods Market, Chipotle, Wawa, CVS Pharmacy and more.

Northmarq investment sales broker Isaiah Harf completed the sale of a Whole Foods Market located at 6020 North Cicero Avenue in Chicago, Illinois. The 41,148-square-foot grocery store is situated on the first floor of a vertical condominium development. Harf represented the seller, a private investor based in Maryland. A family trust located in Denair, California acquired the asset for approximately $18.1 million.   “Despite the challenging headwinds of interest rates rising nearly 300 basis points during the transaction, this premier asset received multiple offers and went under contract quickly,” said Harf. “The purchaser is excited about their future long-term ownership of this property and its uniqueness in the immediate marketplace, offering full underground parking and being located directly off the expressway. Not only were the sales at this location above average, but Amazon/Whole Foods had already renewed once prior.”  The property was originally built in 2007 and is situated on a 1.85-acre lot. Located in the Sauganash neighborhood of Chicago’s northside, the high-end grocer benefits from 284,237 residents with an average household income of $99,533 within a three-mile radius. The retailer is less than 12 miles from downtown Chicago and sits at the signalized hard corner of West Peterson Avenue and Cicero Avenue, immediately east of the on and off ramps to Interstate 94.

For investors evaluating a shopping center purchase, the anchor tenant can make or break the deal. Although grocery stores and big-box retailers have traditionally topped the list of ideal anchors to help draw customers to retail centers, another worthy option deserves investor attention: fitness centers.   When we think of traditional anchors in multi-tenant retail, names like Walmart, Target, Hobby Lobby, T.J. Maxx, most grocery stores, and other big box retailers come to mind. While gyms may not check all the same boxes as traditional anchors, over the last several decades they have emerged as resilient tenants that bring steady traffic to neighboring retailers and a great investment.  Resiliency  When retailers shut down at the beginning of the pandemic, fitness centers were among the first places to empty—and many of the small, local gyms stayed that way. However, the large fitness chains like Planet Fitness demonstrated that even a global crisis would not stop them. Almost as soon as they opened their doors again, Planet Fitness operators began repaying rent deferments, often ahead of schedule, putting themselves right back on their pre-pandemic trajectory.  Fitness buffs made do with home equipment, outdoor runs and streaming workouts during the pandemic, but many missed the community of their local gym. By second quarter 2022, gym patrons returned in force, leading to a 15.9 percent increase in fitness visits compared to second quarter 2019 according to retail traffic data firm, Placer.ai.  Health and Wellness is Here to Stay  In recent years, scientific data has continued to demonstrate the physical, mental and emotional benefits of exercise—and Americans are paying attention. According to IBISWorld, over the last five years the number of gym, health and fitness clubs in the U.S. has grown an overage of 2.7 percent annually, reaching more than 112,000 locations in 2022.  While attaining a beach body may have been the ultimate goal of exercise a decade ago, the top two reasons that Americans work out today are to reduce stress and feel better mentally. Big fitness brands are adapting with more wellness services, stress-busting workouts and community events. Some are even adding new services like hydro massages and cryotherapy, creating even more incentives for members to make regular visits.   Additionally, a heightened focus on mental health has opened eyes to the social benefits of exercise. Gymgoers appreciate the opportunity to mingle with like-minded people multiple days a week.   Steady Foot Traffic  Unlike grocery and big-box retail patrons, fitness center members typically make several visits in one week—sometimes even daily. Moreover, they tend to linger. After a long workout, a member may stop by the café next door to pick up an iced coffee or smoothie or grab a quick dinner at a nearby restaurant. In family-friendly shopping centers, parents might bring their children to a neighboring trampoline park after they’ve been cooped up in the gym’s kids club for an hour or two.   The data backs up these anecdotes. Analysis of cellular tracking data shows that one popular fitness location had 572,000 visits in a single month from people who made at least 10 visits that month—compared to 191,000 visits to a traditional AAA credit retail anchor. The fitness market outlook is bright as consumers increasingly prioritize self-care, wellness and community engagement. As consumers once again fit gym visits into their schedules, it’s time to consider whether fitness-anchored retail fits into your portfolio. While every investment is unique, a highly trafficked, loyalty-based tenant can have a significant influence on a shopping center’s overall synergy and long-term success. As you begin to evaluate fitness-anchored centers, consider the following general tips: To download a copy of this report, please provide the following information: hbspt.forms.create({ region: "na1", portalId: "7279330", formId: "4e6713d2-ff33-454c-94f7-b3a2c5036179" });  

The U.S. economy reported gross domestic product (GDP) annualized growth of 2.6 percent in the third quarter, thereby avoiding a third consecutive quarter of negative growth.  This positive news can be easily tempered by the fact that the growth was greatly affected by trade and inventory numbers, which were skewed as a result of world events like the war in Ukraine. But the news of growth was welcomed in an economy that has been starved for something positive for most of the year.  Compounding the economic caution in the absence of sustained economic growth, of course, is the strain that inflation has inflicted on all Americans. In response to 40-year inflationary highs, the Federal Reserve has been forced to react with its primary inflation-countering tool: increasing interest rates. In early November, the Fed raised short-term rates to the highest level since January 2008. Additional rate hikes are anticipated in December, although signals suggest we’ll see increases in smaller increments going forward.  Still, amid all the turmoil and uncertainty, several quick service restaurant (QSR) operators continue to roll-out expansion plans and report better-than-expected sales and earnings.  Restaurant Brands International (NYSE: QSR) recently reported third quarter revenue numbers that exceeded expectations. With same store sales growth from their Burger King, Popeyes, Tim Hortons and Firehouse Subs brands, the company’s profitability also came in higher than expected.  At the same time, Yum Brands (NYSE: YUM) also reported same store sales for its Taco Bell and KFC stores that were higher than anticipated, citing popularity for its “premium” menu items with consumers. McDonald’s (NYSE: MCD) also recently reported an increase in same store sales, pointing to a strong consumer appetite for budget fast food versus more expensive dining options.  As a result of the sustained strength of the brands like the ones mentioned here, as well as others, QSRs continue to be a very popular option for many net lease investors looking for conservative and predictable investments in the $1 to $4 million price range.  As an illustration of this current level of investment demand and pricing, we recently represented a client in the acquisition of a newly constructed Burger King that had relocated to a Philadelphia suburb of New Jersey. With a guarantee from a 29-unit franchisee, the triple net lease had nearly 20 years of initial term remaining with rental increases every five years. The all-cash buyer used the acquisition as a 1031 exchange replacement property and at approximately $3 million, the acquisition cap rate was in the mid 5-percent range.  A different 1031 exchange client, that required a conservative level of financing, is now under contract with another Pennsylvania Burger King that has over 20 years of initial term remaining. The lease is guaranteed by Carrols Restaurant Group – Burger King’s largest franchisee with over 1,000 locations – and also has regular rental increases.  "Amid all the turmoil and uncertainty, several quick service restaurant operators continue to roll-out expansion plans and report better-than-expected sales and earnings." Across the Northeast region, real estate investors seeking QSR assets will see supply continue to rise as more and more brands target the region for expansion and growth. Bojangles, for example, has announced long-term plans to open nearly 50 locations over the next seven years and will enter the New Jersey market for the first time. Panda Express and Krystal have also identified New Jersey as a target growth market, while Rhode Island is on the map for Checkers and Rally’s. Dunkin’ has opened new stores in Pennsylvania in recent months, while Sonic has grown in Connecticut.  Investors pursuing stable cash flow investments should consider opportunities across the region. Those moving equity through 1031 exchanges toward single-tenant net lease assets realize these are reliable investments that hold value with little to no management involvement. For these reasons, growth across the QSR sector will provide a variety of attractive investments for buyers to consider.  To download a copy of this report, please provide the following information: hbspt.forms.create({ region: "na1", portalId: "7279330", formId: "58a01bd1-def8-4a08-8b75-43f2c726ccb5" });

Originally published by Wealth Management Retail brokers and consultants expect strong interest when Sears spinoff Seritage Growth Properties starts to liquidate the remainder of its assets, as recommended by its board of trustees. But these industry insiders expect discounts will be necessary in order to consummate transactions.  Shareholders recently approved a plan that will bring additional Seritage properties to the market during a time of rising interest rates and a slowdown in commercial real estate deals.  Despite that added challenge, Seritage assets are bound to garner a lot of investor interest, says Margaret Caldwell, investment sales broker at Northmarq, which provides capital markets services to commercial real estate investors. Many of these properties are located in prime markets, with strong population and income levels, she notes.  Typically, a Sears box attached to a regional mall includes the parking field surrounding it, which can add a significant number of acres to the property, making it all the more attractive to potential investors, according to Caldwell.  “There are lots of investors and developers that continue to look for opportunistic investments where they can create value,” Caldwell says. “Many of the Seritage properties provide exactly these types of opportunities—repositioning an asset, for example, through redeveloping these boxes into other uses, such as multifamily or exterior-loaded retail.”  Industrial and self-storage could also be among potential uses for those sites, according to other industry insiders.  The investor demand will be there as long as the pricing on the assets is in line with the market expectations for absorbing risk, backfilling vacancies and undertaking redevelopment, says Matt LoPiccolo, first vice president specializing in retail with Matthews Real Estate Investment Services. He expects that to be the case because Seritage has a loan payment due to Berkshire Hathaway.  “The demand is there, and it’s just a function of their expectation on the price and that’s why some of their deals have sat on the market for a while or fell out of contract,” LoPiccolo says. “[There’s interest] because you’re going to be well below replacement costs and land value. The opportunity creates value in terms of backfilling with better quality tenants or in-demand tenants. All of that just boils down to the time and cost to reposition or redevelop the site.”  The main challenge to completing sales of remaining Seritage assets will likely be what’s going on in the debt markets, says Daniel Taub, senior vice president and national director of retail with real estate services firm Marcus & Millichap. Some of the deals where there will be opportunity to create higher value are also going to be capital-intensive, and matching up those investment opportunities with the right capital—including both debt and equity—is likely to be more challenging due to the current instability in the capital markets, he says.  Neil Saunders, managing director at research firm GlobalData Retail, is a little more pessimistic. While there will be some demand for the assets, it won’t be as strong as it would have been a year ago, he notes. The market has turned downward, and people are more concerned about taking on debt to finance new transactions. Real estate values under more pressure as well, he adds.  “I think some of the yields people see coming from it are much weaker than they were last year and before the pandemic hit,” Saunders says. “There’s definitely something they can do in terms of a sale, but I don’t think they will get the maximum value out of these things. There are certain properties they will have to sell at a discount if they want to unload them.”  In the end, Saunders says, he sees the liquidation sales going through because Seritage must realize it could be more difficult to close deals in 2023 if rising interest rates and lower consumer sentiment further damages the economy.  “Maybe the thought process is to get rid of them now because they might get less in a year’s time,” he adds. “It’s not a great time to be selling, but the risk is if you leave it, it might be even worse.”  Pricing  Seritage properties will most likely be priced based on land values per acre in the local market or price-per-sq.-ft. for existing older buildings, according to Caldwell. Pricing would be maximized, however, if investors are provided the option to purchase these assets separately or in mini portfolios, she adds.  Caldwell doubts that the remaining assets can be easily sold as a portfolio other than at a discount, given the significant number of remaining properties and the diversity of locations included.  According to Taub, it’s hard to feel confident about prices and their impact on private and institutional investors at this time.  “Pricing seems to be the most difficult to get your hands around because of what it was 30, 60 or 90 days ago and what it is today, being materially impacted by what’s going on in the capital markets,” he says. “The market to varying degrees is impacting all asset classes in retail.”  Some of the assets, if there were stabilized and depending on their location, could have sold at cap rates in the high 5 or 6 percent over the summer. The ones offering more of a value-add approach or more of a redevelopment opportunity, could see cap rates reach the 7.5 to 8.5 percent range, Taub notes.  Potential buyers  The mix of interested buyers for Seritage properties could range from retailers to developers looking at the best possible uses, including multifamily, says LoPiccolo. Most former Sears and Kmart properties hold strategic locations and could also offer an opportunity to develop mixed-use projects, he notes.  Saunders expects potential buyers to include real estate developers, mall owners and private equity investors. That buyer pool is going to be a lot smaller than it would have been before the current economic environment set in, he notes.  “There would have been a whole suite of people interested, but now the prospective field is a bit thinner,” Saunders says. “I think you’re more likely to get some of those investment firms if they can see these as a long-term win for them. I don’t think you will get much interest from the retail community, quite honestly. There are buyers, but they are a bit more discerning, and you have to work hard to find them.”  Some buyers, however, will be attracted by the risk-adjusted returns and property locations, according to Taub.  “The real estate in many instances is fundamentally good real estate, including those in non-primary markets,” Taub says.  If the asset is attached to an enclosed mall, the mall owner may be the one to buy it because they could see it as a way to control their destiny and create additional value for their mall, Taub says.  In addition, the liquidation could open opportunities for investors who can complete all-cash transactions and wait out the current economic cycle, he says.  Where the assets are  During an initial offering, Seritage brought about 38 assets to market, and Taub says he’s awaiting an announcement for the next batch.  Seritage owns properties across the country, but primarily east of the Mississippi River, he notes. They are located along the East Coast from New Hampshire, New York, Delaware to Virginia, the Carolinas and Florida. There will also be opportunities in Ohio, Illinois and Wisconsin in the Midwest, Texas and Arizona in the Southwest, and California on the West Coast.  The properties vary tremendously, but the majority of the Seritage sites are in traditional suburban locations  “With some of them, [Seritage] had successfully executed on the majority, if not the entire business plan, on repurposing those spaces,” Taub says.   

Northmarq’s Jason Maier, previously of Stan Johnson Company, has completed the sale of a single-tenant triple net lease Walgreens located at 509 Collins Avenue in Miami Beach, Florida. The 22,857-square-foot freestanding property sold for $35.3 million reflecting a 4.59 percent cap rate. Maier represented the buyer, a New York-based private investor. The seller was an individual based in New York.  “We are pleased to have been able to acquire this trophy Miami Beach property on behalf of our client, given the long-term lease to Walgreens and the inherent quality, size and intrinsic value of the real estate,” said Maier. “We were very excited to complete this transaction for our client, a generational real estate family that is taking a long-term view and holding period.”  Located in the heart of South Beach, this two-story property is strategically positioned on the hard-signalized intersection of Collins Avenue and 5th Street. The single-tenant retail store was built in 1995 and is situated on a 0.35-acre corner lot. The unique property is just one block away from Ocean Drive and a world class beach and minutes from the newly renovated Miami Beach Convention Center, 4,000 high-luxury condos, and some of South Beach’s iconic resorts and hotels.  

Originally published by Pittsburgh Business Times SomeraRoad has sold off the real estate of one of the SouthSide Work's key hospitality anchors as it continues to reposition the next complex with its new "micro neighborhood" approach.  A new owner based in New York called Regal Ventures bought the Cheesecake Factory restaurant property at the heart of the SouthSide Works, paying $7.1 million for the property. The restaurant, known to draw more than one million diners a year, will continue to operate as normal, as it renewed to a new 15-year lease last year.  Ian Ross, founder and principal of SomeraRoad, announced the sale on his LinkedIn account, describing it as part of an ongoing component of executing its business plan.  The sale for a restaurant building that totals more than 12,500 square feet in size translates to a price of $565 a square foot, SomeraRoad announced.  The sale comes after SomeraRoad had bought the SouthSide Works as a distressed asset in the year before the pandemic, acquiring the nonperforming debt of the asset and then taking ownership with some significant redevelopment plans.  Now, the company is touting it was able to find at interested buyer for the property amid a challenging business environment as it works to invest elsewhere at SouthSide Works, with its $85 million apartment development The Park now under construction.  The New York-based investment sales broker who helped to bring the deal together, Asher Wenig, of New York-based Northmarq, noted a "major rejuvenation" of the SouthSide Works in a prepared statement and expects "this strong performing Cheesecake Factory will benefit from major growth in the area given the healthy term, rent and percentage rent outlined in the lease."  SomeraRoad has invested to redevelop the town square in front of the Cheesecake Factory, establishing three new food vendors there, as part of its bid to achieve a renewal with the restaurant, now selling off the restaurant asset as it works to improve the larger complex.  The sale of the Cheesecake Factory property is the second sale of a portion of the SouthSide Works by SomeraRoad, which also sold The Flats at SouthSide Works, anchored by a new Rite-Aid store at the corner of 27th Street and East Carson, in July.