How to Create a Profit Selling NNN Outparcels

NNN Lease Investments News


Create a Profit Selling NNN Outparcels

One of the time tested hallmarks of successful real estate developers and operators is the ability to create and maximize value of the assets they build, own, and acquire. Historically, these methods have been comprised of new construction, re-tenanting, and repositioning of centers. These aforementioned strategies will continue to be the bread and butter of their businesses. Due to an overall reduction in demand from retailers and the decline in market rents that many markets have experienced in the past few years, opportunities to create value for many companies has been limited. Facing a more challenging environment, real estate companies will need to get creative in order to find opportunities to maximize value. One commonly overlooked method that works in any market that can benefit companies in the near term is to capitalize on the arbitrage between shopping center and NNN investment CAP rates by selling the NNNoutparcels to shopping centers.

Let’s take a look at a couple of examples:

SCENARIO #1:

Purchaser acquires a shopping center for a 7% CAP rate and excludes a McDonald’s pad from collateral when obtaining her loan for acquisition. Subsequently, the developer sells the McDonald’s pad to a NNN investor for a 4.5% CAP rate. Assuming a McDonald’s rent of $100,000 per year, the developer can purchase the pad for $1.43M (7% CAP rate) and can sell it for $2.22MM (4.5% CAP rate), thus creating $800,000 in value by capitalizing on an arbitrage opportunity and selling off the McDonald’s outparcel separately.

Scenario #2:

Developer stabilizes a shopping center that is now valued at a 7% CAP rate. He decides to sell a Wells Fargo bank pad separately from the shopping center for a 6% CAP rate. Assuming a Wells Fargo rent of $300,000 per year, the value selling with the shopping center would be $4.29MM (7% CAP rate). Selling separately for a 6% CAP rate, however, the developer can realize a sales price of $5.0MM, thereby creating $700,000 in additional value.

While many owners have seen the value in selling pads separately many still have not capitalized on this simple yet pronounced arbitrage in the market. This practice can create opportunities to maximize value and potentially creates additional value in a proforma that can be utilized to win a bid for land or an existing asset that would have otherwise gone to competition.

In some cases, there can be hurdles to selling outparcels separately which can generally be overcome with advanced planning. Below is a list of steps that developers, acquirers, and existing owners can take to increase the ease of selling outparcels separately from shopping centers.

Steps for Developers:

Subdivide outparcels as early as possible

If possible, negotiate the right to sell separately as part of construction loan

Have a reciprocal easement agreement for the outparcel drafted by your attorney and approved by your lender before loan closing

Steps for Acquirers/Owners:

Subdivide outparcels as early as possible

When obtaining acquisition financing or refinancing, exclude parcels from collateral or negotiate release provision

Have a reciprocal easement agreement for the outparcel drafted by your attorney and approved by your lender before loan closing.

JonathanFlorin can provide consulting services to developers, acquirers, owners in strategizing optimal way to realize value through NNN outparcel sales.

www.calkain.com

Rates Continue to Dip for NNN Lease Investments

NNN Lease Investments News

 Net Lease Investments Rate Continue to Dip

The dominant story line for credit tenant net lease assets—the decline of cap rates in this space—continues, according to the latest quarterly report by locally-based Calkain Cos., and New York City-based Chandan Economics. Cap rates for retail net lease properties tracked by Chandan declined to a rolling average of 7.1% in June. Also, preliminary data for July and August show the compression continuing into the third quarter--even as spreads over the risk-free benchmark widened.

“This has been a consistent story for some time” Calkain principal Jonathan Hipp tells GlobeSt.com. “There is a direct imbalance between investor demand and supply, especially for well-located credit properties. Combine that with historically low interest rates and we get the current pricing and cap rate environment.” He adds that the industry is posting executions at the same level as 2007, “which a lot of people thought we would never see again.”

Bank branches and restaurant chain tenants are among the better performing assets, with the former seeing average cap rates fall to 6% in the second quarter. Most restaurant cap rates excluding such credits as McDonalds--fell to 8%. Other stable restaurant chains and some urban locations registered cap rates below 5%, rivaling high-quality assets in the office and apartment sectors.

Declining cap rates aren't the only story line of note in this space. Other fundamentals include rising prices and an enthusiasm for some sellers to exit the market. Some owners are finding that the strong valuations, the availability of low-cost financing for prospective buyers and the possibility of higher capital gains tax rates too enticing to resist.

Hipp estimates that one-third, if not more, of his clients want to close deals this year to take advantage of capital gains. “For that reason we think the fourth quarter will be a buoyant one for sales.”

The report was authored by Hipp and Sam Chandan, principal of Chandan Economics. The two firms partnered this year to begin releasing quarterly reports on this under-reported space.

www.calkain.com

NNN Leased Investments Properties sold in Spring Hill, Florida

NNN Leased Investments 

 Sale of Multi Tenant NNN Investment in Spring Hill, FL 

Calkain Companies, a national net lease commercial real estate firm, recently brokered the sale of a multi-tenant, NNN investment in Spring Hill, Florida. The two-tenant investment property is situated on 1.08+/- acres with high visibility to busy US HWY 19, just 30 minutes North of Tampa. It is occupied by Pet Supermarket, based out of Sunrise, Florida. BBB- rated, Humana Marketplace, headquartered in Kentucky is also a tenant.

The site is a 9000+/-sf building divided into 7000+/-sf for Pet Supermarket and 2000+/-sf for Humana. Pet Supermarket renewed their lease for 7 years with structured increases and options and Humana exercised their 2 year option. The seller, an experienced private owner and long-time client of Calkain, was looking to liquidate to secure other opportunities. The property sold for $1.61MM which is a 8% cap rate to a private Florida based buyer completing a 1031 exchange.

Calkain Associate, Teal Henderson, who was recently tapped to open the new Midwest office in St. Louis, MO from Tampa, exclusively represented the private seller and provided marketing and transaction support services throughout the sales process. The property was initially introduced to the market with quickly expiring leases. Henderson commented, "We quickly recognized the hurdle of the current lease terms being unfavorable along with the tertiary and lesser known Florida location of Spring Hill. We counseled the seller in reaching out to the tenants and restructuring with more attractive terms. Then after successful negotiations, we re-introduced the property on the market and generated a quick contract. A private buyer interested in a Florida property with an investment grade tenant with ties to the medical industry purchased the asset." As a NNN ground lease, this investment requires that the tenant pay for real estate taxes, insurance, and maintenance expenses, which effectively provides the landlord with a passive, bond-like income stream through commercial real estate ownership. The transaction occurred within the last 15 days and will be recorded in the public records.

Calkain Companies is a boutique commercial real estate brokerage firm which specializes in assisting buyers and sellers with single and multi-tenant retail, industrial, hotel and office net leased transactions. While licensed to conduct business in many states, nationally, Calkain has multiple office locations throughout the Mid-Atlantic, Southeast, Northeast and a new office opening in the Midwest. Additional information about the firm and listings may be found at www.calkain.com

NNN Lease Investment Property Sold

NNN Lease Investment


 NNN Lease Investment Property Sold in Washington,DC

Calkain NNN Investment Advisors recently completed the sale of a NNN investment property in Washington, DC. The purchaser, a private 1031 investor, seeking a stable, credit rated, income-producing asset. The sale, closing at over $1,154 per square foot, broke the record previously set by Calkain for a NNN investment sale.

Rick Fernandez, Managing Director of Calkain Urban retail  Investment Advisors, represented the seller in the transaction and Calkain Managing Director, Jerry Burg, represented the buyer on the purchase of the CVS on Columbia Road in Adams Morgan. “The Adams Morgan CVS is well situated in a grocery anchored, dense, high traffic, urban location within a diverse residential and retail community,” explained Fernandez. “The investor understood that this CVS not only provided a stable income stream backed by a strong credit rated corporate tenant, but also a highly adaptable asset with rock solid generational value,” continued Burg.

The seller reviewed multiple offers from across the country before closing with a private investor who was working with Burg to identify $35MM in NNN investment properties for a 1031 exchange. The transactions closed in the past thirty days.

Calkain Companies is a boutique commercial real estate brokerage firm which specializes in assisting buyers and sellers with single and multi-tenant retail, industrial, hotel and office net leased transactions. While licensed to conduct business in many states, nationally, Calkain has multiple office locations throughout the Mid-Atlantic, Southeast and Northeast United States. Additional information about the firm and listings may be found at www.calkain.com.

NNN Leased Investment Market Begins to Show Signs of a Turnaround

NNN Leased Investment

Japan as the NNN leased investment market begins to show signs of a turnaround

Angelo Gordon & Co., a New York- based manager with $24 billion in assets, is seeking to boost Japan  net lease properties investments amid signs of a recovery, after acquiring about $650 million NNN leased investments in the country the past two years.

Angelo Gordon is seeking bargains in Japan as the NNN leased investment market begins to show signs of a turnaround. Office buildings in Tokyo provided a 3.4 percent total return, including rental income and capital value, in 2011, after a 0.5 percent gain a year earlier, based on data compiled by RREEF, a property investment arm of Deutsche Bank AG. Before that, the market had three straight years of decline, the data showed.

Total return for NNN leased investment properties in the U.K. rose to as high as 15 percent in 2010 and fell by half last year, while properties in the U.S. climbed for two straight years after posting two annual losses, based on data compiled by RREEF.

NNN Leased Rite Aid For Sale

NNN Leased  Investments

                                    Credit Enhanced Rite Aid (Ground Lease) | Philadelphia MSA

Asking Price $5,130,434 | CAP Rate 5.75%

                                        950 E. Baltimore Ave | Upper Darby, PA 19050 [map]

Lease Summary

Net Operating income (NOI) $295,000

Rent/Month $24,583

Rentable SF 14,500+/-

Land Area 1.56+/- acres

Tenant Realty Income Pennsylvania Properties Trust

Credit Rating S&P: BBB

Sub-Tenant Rite Aid, a subsidiary of

Rite Aid Corporation

Websites realtyincome.com

riteaid.com

Ownership Type Unsubordinated

Ground Lease

Lease Type NNN

Landlord Responsibilities None

Store Open 2007

Lease Term 20 years

Lease Commencement March, 2007

Lease Expiration March, 2027

Increases $10,000 at each option

Options Eight (8), Five (5) year

Highlights

This is a very rare opportunity to obtain a Rite Aid ground leased property. The tenant is Realty Income Pennsylvania Properties Trust (wholly owned by Realty Income Corporation (NYSE:O, S&P BBB)) and the subtenant is Rite Aid. This structure enables an investor to purchase a highly desirable location, with a very substantial credit enhancement.

•Significantly credit enhanced ground lease investment

•Hard corner signalized intersection

•Store opened in 2007

•32,000 ADT

•Relocation of successful inline store

•15 years left on lease

•14,500+/- SF store

Location Overview

 Contact a Broker

STAN WYRWICZ

Senior Managing Director

(617) 394-8567

mailto:swyrwicz@calkain.com

You may visit our website

www.calkain.com

to view the entire inventory of  available properties.

FIND US ONLINE

CALKAIN REALTY ADVISORS a division of Calkain Companies

WASHINGTON DC | FLORIDA | MARYLAND | BOSTON 

Demand for Urban Retail Condominiums

Retail Urban Condominiums News

                           The Rise of Retail Urban Condominiums

Regular visitors to the Calkain website (www.Calkain.com) have seen considerable attention given to documenting over the past 12 months the sale of Triple Net (NNN) retail urban condominiums properties. Demand for credit rated property in the urban core of primary markets has always been strong but we now see inclusion of local, non-credit tenants involving smaller transaction sizes drawn into the mix of investment properties sought by investors. Investors have shown a willingness to pay aggressive caps for urban properties. An increase in mixed use residential condominiums brought about by population movement towards the urban core and a pause in expansion by national retailers has contributed to the wide-ranging demand for  retail  urban condom  properties. Coming on the heels of the recession and the ensuing across-the-board hike in cap rates, this move to retail urban condominiums dense, high traffic urban locations signals where investors want to be over the next decade.

Recently identified as a top niche investment trend by the Urban Land Institute (ULI), mixed-use urban projects have drawn retailers and investors to this asset type even in the current market cycle. Driven by a desire to spend less time in traffic, live in a smaller footprint and work and play within an urban atmosphere, aging boomers and Gen XYZers alike are leaving the edge and making their way back to the city. Developers have capitalized on this trend by coupling high-rise condominium living with easily accessible ground floor retail space. The convenience of these on-hand amenities makes for an attractive lifestyle for local residents and nearby office workers. While not a new phenomenon, the rise in urban mixed-use development meets the market at a very good time.

Unable to find quality assets in a tight market, unable to secure favorable debt for less well known tenants in secondary and tertiary markets, investors are finding that lenders are putting more emphasis on the intrinsic value of the real estate. Urban properties are typically more easily adaptable to alternative uses and are viewed favorably by lenders. Investors seeking passive real estate investments are turning to urban, income-producing condominiums (the new “infill”) of varying types as a suitable component of their investment portfolios. You may have seen the Real Capital Analytics (REA) report where they quoted that there was over $20 billion in retail condominium sales over the past five years. What you may not know is that total only includes transactions of $5 million or greater in size. As the chart below indicates, our own experience proves that there were a significant number of transactions well below REA’s $5 million baseline. Included in the mix of under $5 Million condominiums is a broad array of tenants ranging from companies with Standard and Poors AA+ credit ratings to start up restaurant concepts with personal guarantees. That broad range of tenants is good news for developers and investors alike.

www.calkain.com