Trends & Insights

Stan Johnson Company, one of commercial real estate’s leading investment sales brokerage firms, has completed the sale of a single-tenant property triple net leased to The Learning Experience on a long-term basis in Frankfort, Illinois. Brandon Duff and Matt Spangenberg of Stan Johnson Company exclusively marketed the property on behalf of the Chicago, Illinois and Atlanta, Georgia-based seller and procured a Florida-based 1031 exchange  buyer, who paid full asking price at approximately $4.7 million. “The Learning Experience is the nation’s fastest growing early childhood education franchise. While The Learning Experience has been around for over 40 years, it has also experienced 15 straight years of double-digit revenue growth, offering the rare combination of a long-term track record of success and unparalleled recent expansion,” said Brandon Duff, Managing Director and Partner in Stan Johnson Company’s Chicago, Illinois office. “Once buyers understand The Learning Experience story, their unique business-oriented approach, exceptional enrollment success, and track record of selecting high-quality real estate, investors are excited about the long-term hold potential TLE presents.” Situated on 0.84 acres at 20950 South La Grange Road in Frankfort, Illinois, the property was constructed in 2020 and is a new build-to-suit location for The Learning Experience in its ongoing expansion to more than 450 locations. The property is strategically positioned along the high traffic La Grange Road corridor and benefits from the increasing demand for childcare services in one of the fastest growing suburbs in the U.S. “The early childhood education sector has emerged from last year’s COVID-19-related shutdowns as one of the hottest, growth-oriented sectors in the net lease space,” added Matt Spangenberg, Associate Director. “We were able to capture that momentum to drive a competitive bidding environment and complete a successful transaction at the full asking price.”

Stan Johnson Company, one of commercial real estate’s leading investment sales brokerage firms, has completed the sale of Ward Stonebridge Square located at 11255 Woodstock Road in Roswell, Georgia. The 8,006-square-foot unanchored retail center was sold by Ward Stonebridge LLC, a Georgia-based private equity group. It was acquired by a private investor, also based in Georgia, for more than $1.5 million. Doug Clyburn and Julie Clyburn of Stan Johnson Company represented both parties in the transaction. “We sourced this off-market center for one of our clients looking for a well-located, value-add property,” said Doug Clyburn, Associate Director in Stan Johnson Company’s Alpharetta, Georgia office. “Due to an absentee-owner situation, the center was only 34 percent occupied at the time of sale but has excellent upside potential given the five-mile population of 161,032 and an average household income of $174,415 within three miles.” Ward Stonebridge Square was built in 2004 and is situated on 0.99 acres with outstanding visibility and access to Woodstock Road and West Crossville Road. The two current tenants, That Dirty Dog and American Hair Cuts, have been in place for more than 10 years, and the center features three vacant suites between 1,200 and 2,150 square feet each. Area tenants include Starbucks, Home Depot, Kohl’s, Wells Fargo, McDonald’s, Zaxby’s and many others.

In today’s highly competitive marketplace, there’s a new subset of industrial real estate that is catching the eye of net lease investors. Industrial outdoor storage (IOS) properties, also referred to as industrial service facilities (ISF), can be distinguished from more traditional industrial assets in several ways: This subset typically has a much lower floor area ratio (FAR) in comparison to warehouse or manufacturing properties. FAR values for IOS/ISF facilities typically don’t exceed 20 percent. Users of IOS/ISF properties find value in the storage capabilities of the excess yard, which are often concrete paved or crushed rock surfaces. Typical uses for these facilities include equipment storage and maintenance, container yards, bulk material storage and distribution, fleet vehicle storage, trailer parking and drop lots. Properties that can accommodate these unique storage requirements are incredibly attractive to tenants in the fields of equipment rental, trucking, building materials, shipping container, chemical, auto/vehicle parking, energy and waste and environmental services, among others. IOS/ISF assets command higher rents per square foot of building area in comparison to their more traditional industrial counterparts. The additional value that tenants derive from the larger outdoor storage component helps drive this increase. For this reason, rents for IOS/ISF properties are oftentimes quoted in terms of rent per acre per month for ease of comparison in a market or submarket. Given the outdoor storage component, and oftentimes infill nature of these properties, there is a limited supply of this asset type which results in residual values being greater than traditional industrial properties. The renewal rate for tenants in this sector is also quite high, due in large part to the constrained supply of similar properties and higher-than-average replacement costs. Many of these facilities are primed for future alternative uses, but most landlords find that re-tenanting is simply not an issue. Supply is tight, and tenants in this property sector are benefiting from the e-commerce and construction booms that show no sign of slowing. This creates a “stickiness” that more traditional industrial facilities sometimes lack and helps keep tenants at their current locations. "Many of these facilities are primed for future alternative uses, but most landlords find that re-tenanting is simply not an issue." Key Characteristics of the IOS/ISF Sector Fragmented Market | Historically, IOS/ISF properties have been primarily owner occupied or owned by local or regional private investors, high net worth individuals and small private equity owners. There has been limited competition to-date from institutional investors on one-off acquisitions due to the smaller transaction size, but that is starting to change as more institutional capital is now flowing into the sector seeking diversification and yield from traditional industrial properties. Limited Supply | The asset subtype has seen very little new development in recent years. It is difficult in many areas to obtain proper zoning and entitlements for new construction. Many communities don’t encourage low density developments, and if zoning and permits are granted, municipalities may require developers to overbuild the site (e.g., fully concrete paved yards). Low Vacancy Rates | The IOS/ISF sector consistently reports a lower vacancy rate than the broader industrial market. Currently, market intelligence points to an average vacancy rate between 2.0 and 3.5 percent for the subset, compared to 5.0 to 6.0 percent vacancy across the entire industrial market. The limited availability in this space has led to rapidly increasing rental rates in recent years. "Given the outdoor storage component…there is a limited supply of this asset type which results in residual values being greater than traditional industrial properties." Predictable Expenses | Large expense exposure for landlords is very predictable for IOS/ISF assets. Roof, structure and yard maintenance costs are typically the only big-ticket expense improvements on net lease IOS/ISF properties. Some landlords have stated they are willing to take a risk on vacancy because the cost of re-tenanting is significantly lower than nearly all other asset classes, including traditional warehouse buildings. Shorter Lease Terms | It is common to see initial lease terms for IOS/ISF properties in the 5- to 7-year range, which is often shorter compared to traditional warehouse space. A potential cause is the historical lack of institutional landlords in the sector pushing for longer term leases. Additionally, because many tenants in the IOS/ISF sector are long-term occupants, it is not uncommon to find tenants operating in their lease option periods rather than their initial lease term. Local & Regional Tenants | The majority of users of IOS/ISF properties are local and regional companies with smaller credit profiles. However, there are a number of tenants that operate hundreds of locations nationwide and report incredibly strong financials. Some of these household names include ABC Supply Co., Airgas, Beacon Roofing, Carvana, Herc Rentals, SRS Distribution, Sunbelt Rentals, United Rentals, WillScot and XPO Logistics, among many others. hbspt.forms.create({ region: "na1", portalId: "7279330", formId: "e211b579-6a20-43b8-a0ac-06f3ea48f9a0" });

Stan Johnson Company, one of commercial real estate’s leading investment sales brokerage firms, has completed the sale of Summit Orchards, an 81,185-square-foot grocery-anchored community center. Located at 440-560 Northwest Chipman Road in Lee’s Summit, Missouri, the center was 100 percent leased at the time of sale. Margaret Caldwell, Patrick Kelley, Jason Powell and Max Van Dresser of Stan Johnson Company represented the seller, Townsend Summit, an affiliate of Townsend Capital, a Maryland-based investor and developer. Jenel Real Estate, a private family office based in New York, purchased the asset. “Summit Orchards received a lot of pre-emptive bids due to the long-term anchor leases and strong demographics of the area,” said Margaret Caldwell, Managing Director and Partner in Stan Johnson Company’s Atlanta, Georgia office. Summit Orchards is a newly developed center anchored by ALDI, HomeGoods, Ross Dress For Less and Five Below. Situated on approximately 9.6 acres, the property is just 15 miles southeast of downtown Kansas City, Missouri. The center is adjacent to a university, two multi-family complexes and a commercial office campus in the fast-growing city of Lee’s Summit. “Driven by the investment-grade credit of the all-star cast of anchors, Summit Orchards checked all the boxes as a new development in a growing submarket of Kansas City,” added Patrick Kelley.

Stan Johnson Company, one of commercial real estate’s leading investment sales brokerage firms, has completed the sale of a single-tenant industrial service facility leased to Herc Rentals. The 11,591-square-foot property is located at 8016 Veterans Memorial Parkway in St. Peters, Missouri. Zach Harris of Stan Johnson Company, with assistance from Senior Analyst Mark Grossman, represented the seller, Nelson Grumney with Neland Investment Management. The asset was acquired by a private investor who was represented by Patrick Doherty with Marcus & Millichap. The property sold for more than $4.3 million. “The industrial outdoor storage (IOS) and industrial service facility (ISF) asset category has been a specialized focus for our team for quite some time, and this transaction represents another successful closing in this arena,” said Harris, Director in Stan Johnson Company’s Tulsa, Oklahoma headquarters. “The marketplace for ISF and IOS deals continues to amplify from an array of investor types – institutional REITs, private equity, family offices, individual investors and 1031 exchange buyers. This demand was clearly evidenced during our marketing process on this property with the ultimate buyer, a private investor on a 1031 exchange, being chosen from a very competitive group of offers.” The well-located property in a northwest suburb of St. Louis, Missouri features direct frontage along Interstate 70 with visibility from more than 136,000 vehicles per day. The facility, built in 2008, is situated on approximately 3.0 acres of fenced land and offers additional income from a billboard that operates on a ground lease. 

Originally published by REJournals.com   How has the Midwest retail market weathered the pandemic? Really well, overall. While pandemic-related closures still caused difficulty for tenants, Midwestern retailers fared much better than their coastal counterparts who experienced lengthier lockdowns and tighter restrictions. Another possible benefit to tenants in the central part of the country is a lower expense load – in the form of lower property taxes and rental rates – which might have offered these businesses a small counterbalance against revenue losses. In 2021 and beyond, I expect we’ll see retailers in the region return to a growth mindset. We are currently working on a number of net lease projects in the Midwest – national retailers in the home improvement sector and QSR space are committing to new store openings, and we’re working on grocery stores undergoing significant lease extensions and remodels of existing stores. Which retail sectors are in the highest demand from investors? The effects of the pandemic exacerbated an existing trend in the net lease space toward “essential” retail investments, pushing certain segments to record levels of demand. This included retail superstores, grocery stores, drug stores, QSRs, dollar stores and convenience stores. Retail/medical cross-over assets such as dialysis have also remained incredibly liquid. As deal making activity ramped up in Q3’20 following an uncertain Q2, cap rates for these product types began to compress. We have seen first-hand swings of more than 100 basis points on some investment-grade credit deals since Q2’20. Investor sentiment towards other retail classifications, including casual dining, gyms and some childcare assets suffered though. Fortunately for those segments, demand is now normalizing. We recently closed on one single-tenant childcare asset and have a second location headed to contract, suggesting growing confidence in this segment again. While the long-term demand characteristics for these deals are very good, the market softened a little bit on these assets through the winter. What challenges are buyers and sellers facing right now? Buyers are most immediately challenged by limited inventory. Extremely low interest rates have proven a “double-edged sword” for buyers. While the opportunity to lock in cheap debt still exists for the time-being, buyers must compete against their peers in a market where cap rates have moved downward with loan constants. I don’t expect the pace of net new construction deliveries in the Midwest to off-set this supply-demand imbalance. Rather, it will likely be a combination of market factors that will cycle the dynamic in the other direction. Seller challenges are somewhat more variable and are often deal-specific. In addition to some non-essential retail classifications falling temporarily out of favor, we are seeing buyers – and also lenders – underwrite such deals to a new, tighter standard. For instance, above-market rent, or liberal force majeure lease language, could impact a deal to a degree not seen prior to the pandemic. Even sellers transacting A+ assets are subject to some difficulty. A frothy market brings emotional and sometimes unpredictable buyers to the fray – in any market, performance is paramount. What are your predictions for the next 18 months? I believe many Midwestern markets will experience a boost in growth as our economy continues to recover from the pandemic. Whereas pre-pandemic, primary cities and their urban cores were the focus of the boom, I think you will see secondary cities share in the momentum going forward. These secondary markets have so much to offer in terms of amenities and quality of life. Smaller communities will be differentiated by their ability to either attract new industries, or by recreational attributes that appeal to remote employees. The “reshuffling” of the past year has been a benefit to many Midwestern locales and more real estate opportunity will follow. Despite the tightness in the market, there is real opportunity for real estate investors. Identifying those market segments that were slower to recover from the effects of the pandemic is a real buying opportunity, especially in combination with current interest rates. Evaluating existing holdings for rapid appreciation may be a smart exit opportunity in a favorable tax climate. All signals suggest that interest rates will begin to rise in the next 18 months, which in turn will impact cap rates. It is a very good time to pay attention to lease economics and how yours are structured to perform in an inflationary environment.  

Stan Johnson Company, one of commercial real estate’s leading investment sales brokerage firms, has completed the sale of 105 Greenbrier Dear Road in Anniston, Alabama. The 7,488-square-foot retail building is fully leased to Advance Auto Parts. Stan Johnson Company’s Brian Lane and Emery Shane represented the seller, an individual investor based in California. Jeff Enck, also of Stan Johnson Company, represented the Georgia-based 1031 exchange buyer. The property traded for approximately $1.0 million reflecting a 7.01 percent cap rate. “The purchaser acquired the property to complete a 1031 exchange out of an older multi-tenant property,” said Enck, Associate Director in Stan Johnson Company’s Atlanta, Georgia office. “They were looking for higher yield with low management responsibilities, so this property was an excellent fit.” The property was constructed on 0.81 acres in 1997, and the tenant has been operating at this location for almost 10 years. At the time of sale, there were approximately five years of term remaining on the double net lease. “The seller was a long-time client that was selling for estate purposes,” added Lane, Associate Director in Stan Johnson Company’s Alpharetta, Georgia office.

Stan Johnson Company, one of commercial real estate’s leading investment sales brokerage firms, has completed the sale of 1555 Brampton Avenue in Statesboro, Georgia. The 6,617-square-foot medical office building is fully leased to Atlanta Gastroenterology Associates but was vacant at the time of sale. Stan Johnson Company’s Doug Clyburn and Julie Clyburn represented the seller, Hamron Inc., an Atlanta, Georgia-based private investor, in the off-market transaction. The asset was purchased by a local development firm for approximately $2.2 million reflecting an 8.84 percent cap rate. “We represented the seller of this off-market ‘dark’ medical office building located in Statesboro, Georgia,” said Doug Clyburn, Associate Director in Stan Johnson Company’s Alpharetta, Georgia office. “The tenant consolidated its operation into other facilities but has maintained the property and will continue to honor its lease for the six and a half years remaining on the original 15-year absolute triple net lease. This provides the new owner with in-place cash flow, including 2.0 percent annual escalations, and they’ll have ample time to re-tenant or redevelop the property.” The property was built in 2004 and is situated on 1.45 acres. Statesboro, Georgia is located one hour northwest of Savannah and is a healthcare leader in southeast Georgia. The site is in close proximity to the East Georgia Medical Center and is adjacent to Georgia Southern University.