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Research Library Wed, 04/27/2022 - 09:21
MarketSnapshot: Q1 2022
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...
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News & Insights
Best Places to Work
Excerpt of article originally published by GlobeSt
With more and more companies bringing their employees back to the office, now is an ideal time to examine the concept of where we work, or to be more specific, the best place to work. Conventional wisdom has it that offices must be designed for collaboration and creative work, as well as a cycling workforce that has adopted a hybrid schedule. This is, in fact, true in many cases. But we have gone further in the following pages, looking at the many moving parts that make up a good place to work. As you read through our selection of these offices, you will find there is a wide range of attributes, benefits and features that can go into a high-quality workplace and the company that provides it.
Stan Johnson Company
It’s not uncommon to find professionals that have worked at commercial real estate brokerage and advisory firm, Stan Johnson Co. for long periods of time and in a number of roles. Amy Moyer, managing partner at Stan Johnson Co., is one such example. When she started at the company, she took a role that she assumed would be “an interesting job for a few years before I moved on to something else.” Now, 18 years and five positions later, Moyer realizes that she found her career at Stan Johnson Co. “Our company purpose is ‘Helping People Achieve Their Hopes and Dreams,’” Moyer says. “Of course we apply this as we work with our clients in the attainment of their goals, but it is definitely also applied to the development of our employees.” One company asset that has inspired her to remain at the firm is the collaboration among brokers as is evidenced by a centralized, shared database. Cameron Still, corporate marketing manager at the firm, also cites the collaborative nature as one of Stan Johnson Co.’s strengths. “It is common for broker teams to band together on complex deals and for corporate staff to collaborate on internal projects,” Still says. Beyond that, he appreciates the firm’s “genuine emphasis on growth, whether that be growth of the company or personal growth.” With 205 employees across 17 US offices, Stan Johnson Co. has been working to support its brokers with a new sales leadership role, which it created last year. The sales leader is tasked with producing and delivering targeted training, coaching and development, and generating more peer connectivity and competitions for the firm’s newly hired or promoted brokers. In terms of diversity, the firm has challenged itself to expand its recruiting and social networks, while continuously reviewing and revising workplace policies. Looking to provide work-life balance, the company offers summer Fridays, free Peloton app memberships, an employee assistance program and a culture club, which guides company leadership. Initiatives coming out of the culture club include SJCares, where employees serve in their local communities, and a new employee “buddy” program that matches every new hire with an experienced employee.
April 4, 2022

News & Insights
Is It Time to Recalibrate Net Lease Cap Rate Expectations?
Excerpt of article originally published by Wealth Management
With demand coming from all corners of the investment landscape, competition has been pushing cap rates down on net lease assets for some time. But in an environment facing inflationary pressures and rising interest rates, is the tide turning?
As of the fourth quarter of 2021, cap rates for retail, industrial and office net lease properties stood at 5.88 percent, 6.77 percent and 6.80 percent respectively, according to The Boulder Group. Cap rates for retail and industrial properties were slightly up from third quarter numbers, while office cap rates were unchanged.
As part of WMRE's annual net lease investment research, we asked respondents their expectations on where cap rates are going. More than half of investors (57 percent) expect the risk premium (i.e., the spread between the risk-free 10-year Treasury and cap rates) to increase over the next 12 months, which reflects a significant increase over the 42 percent who held that view in the 2021 survey. One-third of investors think the risk premium will remain the same and 11 percent predict a decline.
“If we have a rising rate environment, eventually that is going to have an impact on cap rates,” says 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 and net lease group. Pricing will have to shift in order for investors to generate the desired yield. In addition, the high inflation, rising interest rates and geopolitical issues surrounding the Russia-Ukraine conflict have created a lot of uncertainty in the market and rate volatility. So far, it is still a bit too early to tell, but it does appear that spreads are likely to widen because the cost of debt is going up, he says.
Among the major property types, respondents reported the lowest mean cap rate for net lease industrial at 4.8 percent, followed by retail at 5.3 percent and office at 5.6 percent—all marks about 100 basis points lower than the Boulder Group’s figures. A majority of respondents expect net lease cap rates to move higher in all three property sectors in the coming year.
Cap rates have compressed across the board for most retail net lease assets, and sellers are getting 10 to 15 percent higher prices now than they were a year ago, says Chad Kurz, an executive vice president at Matthews Real Estate Investment Services.
Logically, if interest rates rise and inflation remains high, cap rates should follow. The other side of the equation is that cap rates aren’t driven purely by interest rates. Supply and demand is a big variable that will have an impact on cap rates. For example, while the cost of borrowing has gone up 80 basis points in recent weeks, in some cases, cap rates have gone down another 50 basis points–largely due to supply and demand, Kurz says. “It feels like we might be in the seventh inning, but it all comes down to supply and demand, and there is such strong demand from investors to buy passive net lease deals,” he adds.
“There is a lot of resistance built into the market in respect to upward movement in cap rates for a few reasons,” says BJ Feller, a managing director and partner at the Stan Johnson Company. In addition to the supply-constrained market, a second factor is a structural trend of more low-leverage or all-cash investors transacting in the marketplace. “The good news about a marketplace where the prevailing leverage is much lower than it was in the Great Recession in 2008 and 2009 is that people aren’t necessarily solving for leveraged yields,” he says. Demand from cash or low-leverage buyers could insulate some cap rates from upward movement in interest rates.
April 1, 2022

Research Library
The Top 100 | Tenant Expansion Trends: March 2022
Summary of future growth plans for the top 100 retailers, as selected by brand recognition, expansion rate and frequency of investment sale transactions
Average cap rate and sale price information for the most commonly traded retailers
Credit rating summary with parent company information
Average square footage ranges and store counts for each tenant
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March 31, 2022

Press
Stan Johnson Company Brokers Sale of Dayton, Ohio Healthcare Laboratory
Stan Johnson Company, one of commercial real estate’s leading investment sales brokerage firms, has completed the sale of a 64,000-square-foot healthcare facility located at 2308 Sandridge Drive in Moraine, Ohio. The property is fully leased to CompuNet Clinical Laboratories, a full-service clinical laboratory serving physicians, hospitals and health organizations throughout southwest Ohio. 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, Ohio. The property 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 a southern suburb of Dayton, Ohio. 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 features convenient access to Interstate 75 and is in close proximity to Kettering Health’s main campus.
March 25, 2022

News & Insights
Chalmers Equity Group Pivots from Industrial
Originally published by Los Angeles Business Journal
Industrial is the hottest commercial real estate asset type now, especially in Southern California with its busy ports and large population. But one of this area’s biggest industrial developers is finding it needs to pull back as the competitive market is making it difficult to find deals.
Instead, the company’s founder plans to put a greater focus on his construction business going forward.
“We’re entering a really difficult time for industrial real estate because of the pricing,” said Chalmers Equity Group’s founder, Trace Chalmers.
Since its formation in 1987, Pico Rivera-based Chalmers Equity has grown dramatically, shedding its initial focus on small apartments to become one of L.A.’s larger industrial developers. It ranked No. 9 on the Business Journal’s list of top developers in L.A. based on projects developed over the past decade.
The company focuses on industrial, something Chalmers had experience in prior to starting his namesake company.
The company works closely with Chalmers’ C.E.G Construction which builds the properties Chalmers Equity Group owns.
The company’s portfolio is 100% industrial real estate assets. It recently sold an office property in the Arts District. Said Chalmers: “We’re not really good office landlords.”
Industrial, he said, is a more straightforward asset type to own.
Bret Hardy, executive managing director at brokerage Newmark Group Inc., said industrial real estate is of huge interest to developers.
“Industrial continues to be the darling of the commercial investment real estate investment world since the onset of the pandemic,” Hardy said. “Industrial was in favor pre-pandemic and is more in favor now. That’s due to ecommerce, third-party logistics, manufacturing and just overall warehouse demand.”
Brianna Demus, vice president at Jones Lang LaSalle Inc., added that sub 1% vacancy rates for industrial space in most of Los Angeles makes it a desirable area. But a lack of land is making it increasingly difficult to develop.
Getting started
When Chalmers founded the company in 1987, it focused on smaller apartment buildings in East Los Angeles and Compton.
He started industrial work as a contractor after the recession in 1989 and went on to become known for industrial work.
Today, the company is focused on industrial projects in areas such as Santa Fe Springs, City of Industry, Commerce and Vernon with projects averaging 75,000 square feet. It focuses on multi-tenant buildings. “We like the fact that if one tenant goes broke, you don’t have a whole building empty,” Chalmers said.
C.E.G Construction, meanwhile, took on its first project in 1993 – a bathroom remodel for Dallas-based Trammell Crow Co.
Initially, a lot of the work was tenant improvement projects brokers helped him find.
“We were still doing whatever development work we could do but most of it shifted to C.E.G Construction,” Chalmers said of the business.
The revenue from the construction business was used to buy industrial properties, which the construction company in turn worked on.
“The key to our company is that we do everything,” Chalmers said. “The construction company has its own engineering, its own architecture, we do our own concrete (work), we’re basically a design-build company and we can do that for Chalmers Equity Group or for the clients.”
Slow times
Chalmers said some of his company’s success came from understanding when to slow down.
“We were doing well and in 2006, 2007, fortunately for us we saw that (recession) coming and took our hands out of the cookie drawer and let other people buy those (projects),” he said. “Thank God we did. Seventy percent of the guys doing what I was doing got wiped out.”
By 2009, Chalmers said his company was “almost the only developer in L.A. County” focused on industrial real estate.
Today’s industrial market has helped the company do well, he said.
“It has been a double whammy for us to get lower interest rates and increased rents.”
But Chalmers said like in the mid-2000s, he is not aggressively acquiring product now.
“We’re sitting here now with a significant amount of capital and although we are still making offers and trying to buy some things, we’re happy to sit on the sideline for a bit,” he said.
Chalmers explained that is difficult to buy land to develop new product.
“Land is crazy expensive,” Chalmers said. “We’re going to have to hold tight for a little bit.”
Chalmers said the company does not have any financial partners and has been “making really good profit models and it didn’t make sense to bring in anyone else.” Instead, he is focusing on the construction business while Chalmers Equity will focus on managing its assets.
David Wirgler, associate director of Stan Johnson Co., said he doesn’t expect a slowdown of developers trying to create industrial product because of the demand in the marketplace, but experts agree it’s expensive and land is scarce.
“There are a lot of challenges for new development. The first is you need available land and we’ve got fewer and fewer available sites in markets where people want to be,” CBRE Group Inc. Vice Chairman Craig Peters said. “Then you’ve got to be able to entitle that land which can take many years … There aren’t many flat sites left so a lot of land has challenges.”
Demus at JLL agreed that there was a lack of land to develop. Looking forward, she sees more developers tearing down existing product to create new buildings.
March 25, 2022

Research Library
State of the Zero Cash Flow Market
Current market components have created an environment that is prime for an owner considering a sale of a zero cash flow (ZCF) structured property. Demand for these assets is strong as a result of velocity in real estate sales that creates 1031 exchange needs. In addition, non-1031 buyers seeking near-term tax benefits from ownership see a short window of time to take advantage of current benefits scheduled to diminish after this year. These drivers of demand are met with a reduced supply, resulting in current all-time peak pricing. Here, we speak with Zach Pool, one of Stan Johnson Company’s ZCF experts, to better understand current dynamics in this unique investment sector.
Lanie Beck: What is the current state of the zero cash flow market?
Zach Pool: The current ZCF market is in a state of unfamiliarity, experiencing a cycle that is providing exceedingly little available inventory. This lack of product has created a supply/demand imbalance that has not been seen in years. This imbalance is yielding tremendous competition for limited assets and driving price for sellers.
LB: Where does the demand for zeros come from?
ZP: The primary buyer pool for zeros has always been 1031 exchange-driven, though there are investors with other motivations. A zero is attractive to exchange buyers who have little or no equity, seeking to fulfill their trade need by replacing a significant amount of debt with as little equity as possible.
Additionally, an exchange buyer with a larger amount of equity may seek a zero in order to use the paydown/readvance feature provided in the loan, allowing the buyer to right-size the debt and equity requirements of the trade and extract a significant amount of tax-free equity once the exchange is completed.
Alternatively, a non-exchange buyer may be looking to purchase an asset that will produce net tax losses, offsetting income elsewhere in the owner’s portfolio. These tax benefits can be multiplied by taking advantage of current allowances under the tax code, such as 100 percent bonus depreciation. The bonus depreciation allowance is set to unwind after 2022, encouraging buyers to act now in order to maximize their investment.
LB: How is this increase in demand affecting pricing?
ZP: The market is demonstrating an increase in pricing as buyers are far outweighing sellers and competing for a very limited amount of product. Prices are currently at all-time highs, and we are even seeing an increased appetite for traditionally less-desirable deals (leasehold interests, accruing debt structures, etc.).
LB: What is the primary cause of the lack of new inventory?
ZP: There are fewer CTL-financed assets (credit tenant lease), and this reduced level of newly developed inventory is at least partially the result of three factors: 1) a compressed cap rate market, 2) historically low interest rates and 3) notable tenant downsizing.
First, amidst the COVID-19 pandemic, we saw a flight to credit quality throughout the net lease space. As the market proved uncertain, and lesser credit tenants struggled, investors sought the safety provided by an investment grade tenant and were willing to pay a premium for it. This willingness from the buyer population has had a significant impact on the economics of the CTL structure, curbing the benefits of high-leverage financing due to the ability to secure an aggressive cap rate at the exit. This trend has been aided by the inexpensive capital available to purchasers.
Secondly, in addition to the desire for limited credit exposure, low interest rates allowed buyers to be more aggressive on price, further compressing cap rates. This low interest rate environment has cultivated an aggressive market, and the end result is developers of credit tenant product are achieving better net proceeds by selling projects with a standard cap rate structure vs. a zero structure.
Thirdly, one of the most notable CTL tenants, CVS Pharmacy, has recently announced their intention to close approximately 10 percent of their footprint over the next three years. It is no surprise that development of additional CVS Pharmacy CTL-financed sale leasebacks has slowed in the wake of this announcement.
LB: Is there another cause contributing to the lack of inventory?
ZP: Yes, a second cause of today’s lack of inventory is reduced trade volume. The lack of steady deal flow has become a self-fulfilling cycle. Many ZCF owners have become less inclined to sell in light of increased demand. While investors are generally attracted to the idea of capturing the level of equity that now exists within their property, they are increasingly apprehensive about their target replacement being priced at a premium. This hesitancy to sell out of concern of being able to locate a reasonably priced replacement has created somewhat of a gridlock. As long as interest rates remain exceptionally low, this trend very well may continue. However, the low-rate environment appears to be nearing its end.
LB: What are your predictions for the future?
ZP: We are always hesitant to predict the future as no one has a crystal ball, but there are a few things we may expect. The Federal Reserve has increased interest rates by 25 basis points as of mid-March, reflecting the first increase since 2018. The Fed has also given clear guidance that consistent hikes are likely to occur through 2022 and into 2023 in an effort to help curb the worst inflation the U.S. economy has seen in 40 years. The likely result of increased rates will be an easing of the current cap rate compression as investor yields tighten due to more expensive debt. Low-rate CTL financing will likely re-emerge as an attractive option for credit tenant developers, providing a potential inflow of new zeros, normalizing inventory levels and rebalancing pricing.
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March 23, 2022

News & Insights
Investment Activity in Automotive Net Lease Assets Speeds Up
Excerpt of article originally published by Wealth Management
When The Boulder Group brought a net lease property occupied by Firestone Tire and Rubber Company to market a few months ago, it received six offers before trading for $4.1 million to a private investor based in the southeast.
The Boulder Group President Randy Blankstein, who facilitated the sale in conjunction with Jimmy Goodman, says the buyer was attracted to Firestone’s investment grade credit—the company is a subsidiary of Bridgestone, which is rated “A” by S&P Global Ratings (formerly Standard & Poors).
“Investors continue to search for e-commerce resistant tenants like Firestone,” Blankstein says, adding that the buyer also liked that the 6,116-sq.-ft. property was newly constructed and featured a long-term lease. Its location in Lake Orion, Mich., an affluent suburb on the outskirts of Detroit, was also a big plus.
Farther south in Decatur, Ga., Stan Johnson Company brokered the sale of a 1,678-sq.-ft. property leased to Take 5 Oil Change, a fast-growing automotive concept. A 1031-exchange franchisee investor acquired the asset, along with an income-producing billboard, for roughly $1.1 million, reflecting a 5.55 percent cap rate.
The property garnered multiple offers, says Jeff Enck, an associate director in the firm’s Atlanta office who brokered the deal. It closed at full asking price within 30 days, despite the lack of credit on the franchisee tenant and the short-term lease.
Overall, the velocity and strength of the automotive net lease market shows no signs of slowing, notes Chris Vitori, one of Enck’s colleague and an associate director in Stan Johnson’s Cincinnati office.
“When comparing to other segments on an apples-to-apples basis, automotive properties compare favorably to other segments, and in some cases, are trading at slightly lower cap rates,” Vitori says.
Car culture creates stability
For many net lease investors, automotive tenants represent stability and security, due to a range of macroeconomic trends. Chief among those is America’s car culture—nearly 282 million vehicles are on the roads in the U.S., and those vehicles are an essential for nine out of 10 Americans.
On average, American’s drive 12,000 miles each year and spend 1.5 percent of their household income on car repairs for two vehicles. By 2024, the auto care industry is expected grow nearly 25 percent and reach $477.6 billion, according to Auto Care Association.
The automotive sector consists of various tenants in the auto parts, service (tire and oil change) and collision repair sectors. While some industry experts include auto dealerships in this sub-category, it’s worth noting that they are unlike other tenants in the auto sector.
“Dealerships require frequent renovations, backfill is difficult due to exclusive territories and building designs may not be readily suitable for other uses,” says Vitori. “Dealerships are typically not public companies, making credit of the tenant difficult to pin down.”
Supply in the net lease auto sector primarily consists of auto parts retailers (49 percent), according to The Boulder Group. Popular auto parts tenants include Auto Zone, NAPA and O’Reilly Auto Parts.
Auto parts retailers were largely unimpacted by the pandemic. In 2020, they were deemed essential retailers primarily due to the importance of keeping emergency vehicles and cars for essential workers running properly.
These chains tend to perform even better during difficult economic times. Vitori notes that consumers are forced to attempt self repairs that otherwise would have been handled by dealerships or independent mechanics.
On the service side, Christian Brothers, Firestone and Jiffy Lube are well-known brands, along with collision repair operators Caliber Collision and Maaco.
March 22, 2022

Press
Stan Johnson Company Brokers Sale of Midwest Grocery Portfolio to International Investor for $18.7 Million
Stan Johnson Company, one of commercial real estate’s leading investment sales brokerage firms, has completed the sale of two Fresh Thyme Market grocery stores in suburban Indianapolis, Indiana. Located at 11481 East 116th Street in Fishers, Indiana and 3400 East 146th Street in Carmel, Indiana, the freestanding properties are approximately 28,600 square feet each. The seller was a Chicago, Illinois-based private equity fund, and the buyer was a private equity fund with headquarters in Mexico City. Together, the assets traded for approximately $18.7 million. Mark Lovering of Stan Johnson Company represented both parties in the transaction.
“Due to the extensive reach of our net lease marketing platform, we were able to sell these assets to a repeat international buyer before ever having to market broadly,” said Lovering, Associate Director in Stan Johnson Company’s Chicago, Illinois office. “Investment demand for grocery assets remains at an all-time high, and inflationary pressures are likely to further insulate the underlying values over the investment horizon.”
Fresh Thyme Market is a specialty grocer with more than 70 locations across the Midwest. The tenants operate on long-term net leases at both locations, and both stores draw consumers from outstanding demographics and growing populations across the north and northeast suburbs of Indianapolis.
“Both locations were encumbered by separate CMBS loans, which added several layers of challenges to get these deals completed,” added Lovering. “A lot of credit goes to the buyer and seller. They were both highly organized and remained steadfast throughout a lengthy negotiation process with the special servicers and CCRs.”
March 21, 2022