NNN Lease Markets Slowly Improving

NNN Lease Market News

Office, Retail and Industrial Markets Slowly Improving

The commercial real estate market continues to slowly improve, lifting itself out of a slump that hit in 2010.

The overall market has stumbled along the way, but all in all, the industry is heading in the right direction, area brokers say. 

"We're starting to see projects on the radar for the first time in a long time," said Lee Warfield, president of Cushman & Wakefield | Thalhimer, a commercial real estate firm based in Henrico County.

Anchor tenants, for example, are being sought for Fairfield Commons Mall, which could be razed and rebuilt, off Nine Mile Road in eastern Henrico. "This is a healthy sign," Warfield said.

And the long bulldozed Azalea Mall in North Richmond is back on the books for a project, possibly a grocery store, he said. 

"The best indicator of a healthy or improving market is when existing companies take additional space or new companies move into the market," Thalhimer's Magrill said.

New companies from outside the market haven't moved here yet. But Allianz and SunTrust Banks Inc. taking more space speak to an improving market, he said.

The retail market continues to improve, despite large retailers such as Best Buy, Kmart, Gander Mountain, Dillard's and Food Lion closing some of their area locations this year.

Unlike the office sector, which suffered in 2009 and 2010, the retail sector never saw a big spike in vacancies, Magrill said.

Specialty grocer The Fresh Market and pet-supply retailer Petco are scheduled to open stores this year in Carytown Place, a development in the former Verizon building at Nansemond Street and Ellwood Avenue.

Food Lion closed two area stores this year, but the one in the Gleneagles Shopping Center off Ridgefield Parkway in western Henrico reopened as the second location of Libbie Market. At 32,000 square feet, the new Libbie Market Ridgefield is about three times as large as the original market on Libbie Avenue between Grove and Patterson avenues.

http://www2.timesdispatch.com

Two Triple Net Lease (NNN) Dollar General Sold

NNN Lease Market News

Two net lease investment properties occupied by Dollar General (NYSE: DG) in the Virginia towns of Madison and Ferrum have sold for $2.54 million.

The two properties were recently developed as part of Dollar General's built-to-suit program, and the stores have brand new 15-year triple net leases.

Calkain's Andrew Fallon, Associate, facilitated the transaction, providing exclusive representation to the Seller, who developed the assets. The purchaser was a regional real estate development and management company based in the Northeast.

"The dollar store companies, including Dollar General, are relocating to free-standing stores in existing markets and opening new stores in new markets," said Fallon.

Investors are now looking to single tenant net lease properties to produce steady profits as the commercial real estate market attempts a recovery from the recession. Net lease properties trend toward higher-quality assets and creditworthy renters who often agree to graduated increases in rent over long periods of time.

 
Some of these are even so-called triple net lease (NNN) properties wherein the tenant also pays for maintenance, insurance and taxes on the property. Opportunities for these buys are increasing and investors are increasing their holdings as they begin to realize the benefits of these properties as safe long-term real estate investments.

Dollar General Corporation is the nation's largest small-box discount retailer. We make shopping for everyday needs simpler and hassle-free by offering a carefully edited assortment of the most popular brands at low everyday prices in small, convenient locations. Dollar General ranks among the largest retailers of top-quality brands made by America's most-trusted manufacturers, such as Procter & Gamble, Kimberly Clark, Unilever, Kellogg's, General Mills and Nabisco.

www.calkain.com

Rush to Restaurant Real Estate Brings 53% Increase in Valuation

NNN Lease Market News

Rush to Restaurant Real Estate Brings 53% Increase in Valuation: Real M&A

The 10 biggest U.S. restaurants that sell for less than the value of their property, plants and equipment trade at 70 cents on the dollar, according to data compiled by Bloomberg. With the restaurants slumping twice as much as the Standard & Poor’s 500 Index this year, firms from Biglari Holdings Inc. (BH) to Carlson Capital LP and Becker Drapkin Management LP are agitating for board seats at eateries with fixed assets that are worth an average of 53 percent more than the companies themselves. Ruby Tuesday has $1 billion of such assets, twice its market value.
The economy expanded 0.7 percent in the first half of this year, the weakest stretch since the recovery began in June 2009. As job growth stalled last month, a RBC Capital Markets survey showed one-third of Americans now plan to spend less dining out in the next 90 days, the largest proportion in almost a year.
Ruby Tuesday, valued at $459 million after plummeting 44 percent this year, sells for the biggest discount to its net fixed assets. Cracker Barrel has about $1 billion in land and buildings, exceeding its market capitalization by 16 percent after the company lost almost a third of its value.

http://www.bloomberg.com/news

Demand for Distressed Commercial Property Markets Across the Globe Soars

NNN Lease Market News

 Distressed Commercial Property Markets on Demand Soars

Global demand for distressed commercial property increased dramatically in the second quarter of 2011 and is expected to outstrip supply in the next three months, according to the latest report from the Royal Institution of Chartered Surveyors.
The survey does, however, suggest that the supply of distressed property continues to outstrip demand in some countries, most noticeably in the Republic of Ireland, Italy and the UK.
The RICS Global Distressed Property Monitor is a quarterly report that reveals trends in 25 commercial property markets across the globe. A distressed property is defined as a property that is under a foreclosure order or is advertised for sale by its mortgagee. Distressed property usually fetches a price that is below its market value.
 An increased rate of distressed properties entering a country's market can be seen as a negative economic indicator while a decrease may signal recovery. However, it needs to be borne in mind that the results are very country specific with generally negative numbers coming from those markets where the economic pain is most intense,’ he added.
Investor demand fell in Brazil this quarter, from a net balance of 0 to one of -23. Looking ahead, agents expect the supply of distressed property to fall dramatically in the coming quarter as well, in contrast to last quarter's expectations for increased listings. That said, the real estate market still remains firm with capital values generally thought likely to rise further over the coming months.
Levels of distressed property coming to market in China are still expected to decline in the third quarter, although somewhat less so than the previous quarter, with net balance scores moving from -34 to -20. Looking ahead demand for distressed property is still expected to far outstrip supply in this country which is consistent with the projection for further price gains in the commercial market.

Willis Tower in Chicago Looking to Recapitalize or Sell The Property

NNN Lease Market News

The owners of the Willis Tower in Chicago, North America's tallest building, are looking to recapitalize or sell the property, in the latest sign of rising commercial-real-estate values in the country's top markets.
Office-building values have been rebounding strongly in markets like New York, Washington, D.C., and Chicago. Last summer, a Chicago office tower at 300 North LaSalle St. sold for $655 million, which came to about $500 a square foot, a record footage price for a Chicago office building. By comparison, the Willis Tower sold for about $244 a square foot in 2004.
Designed by the architectural firm Skidmore, Owings & Merrill for Sears, Roebuck & Company, the world’s largest retailer at the time, the 3.8 million RSF building is the preeminent office address in Chicago and one of the premier properties in the world. The Willis Tower provides an exceptional West Loop location, unparalleled views from all of the property’s highly efficient floors and unmatched prestige.

Sears Holdings Corporation (NASDAQ: SHLD) is the nation's fourth largest broadline retailer with over 4,000 full-line and specialty retail stores in the United States and Canada. Sears Holdings is the leading home appliance retailer as well as a leader in tools, lawn and garden, consumer electronics and automotive repair and maintenance.


http://online.wsj.com/article

Africa Market Is The Epicenter of Growth For The Future

Dabur India Ltd. (DABUR), a maker of packaged honey, traditional medicine and hair oil, plans to set up two new factories and introduce more products in Africa as part of a goal to almost double profit in three years.“It makes sense to move, spring out to other emerging markets, because competition these days is very hard in India,” Taina Erajuuri, a Helsinki-based fund manager with FIM Asset Management Ltd. said. “It’s easier for Dabur to go to emerging markets than developed markets because there you have Unilever, Procter & Gamble and L’Oreal.”

Dabur rose 0.1 percent to 103.7 rupees at the close of trading in Mumbai today. The stock has risen 3.4 percent this year, compared with a 12 percent drop in the benchmark Sensitive Index of the Bombay Stock Exchange.

Profitable Growth

“The Africa market is the epicenter of our growth prospects for the future,” Duggal said May 13. “The upsides in some of these markets are as much, if not bigger than India. I’m talking about not just revenue growth, but profitable growth.”

“There are markets where for another 20 years there may not be a significant growth,” Kulkarni said. “You’d find it very difficult to distribute products.” We’ll have to buy companies outside Africa and then seed the markets with those products or develop our own products.”

http://www.bloomberg.com/news

Select Markets Have Already Experiences Noticeable Cap Rate Compression

NNN Lease Market News

According to ISCS, a total of 700 U.S. stores and restaurants – 10.4 million square feet and .07% of retail space – closed this quarter. A 53% decreased from the year before. This has been connected to a 3.3% increase in shopping center sales last year. 2010 did witness a 7.5% increase in GAFO closures over 2009. However, the latter half of 2010 experienced significant improvement. This improvement has trended into 2011.
High quality net lease properties in select markets have already experiences noticeable cap rate compression. Whether or not this trend spreads throughout the greater retail market is uncertain.

http://www.calkain.com/

Free Rent As Away To Attract Tenants in Denver

Commercial property landlords in Denver and the 17 other office markets included in a new study are using free rent as a way to attract tenants.
The Real Estate Investor Survey released Monday by PriceWaterhouseCoopers reveals tenants are getting the biggest break in Atlanta, with an average 10.3 months of free rent.


Read more: Denver commercial landlords offering free rent | Denver Business Journal

Questions and Answers About Today’s Net lease Market

NNN Lease Market News

Can you quantify cap rate differences by market for the same credit tenant?

Demand for credit rated property within the MSA of the elite primary markets is strong but the lack of product means that a NNN net investor is going to pay a premium for that property. The spread for credit rated tenants can vary by up to 100 basis points if you are in New York or Washington, D.C. versus other primary market cities with another modest drop in cap as you enter the secondary and tertiary markets around the country. There is not as significant a variance in the recorded caps for credit rated tenants in secondary, tertiary and the primary markets outside of the elite group mentioned above. A review of closed transactions in 2010 shows that a Walgreens minutes from D.C. in suburban Virginia might sell for a 6.5 cap or better whereas a similar property might sell at a 7.5 cap in Philadelphia.

How do investors weigh credit tenant versus strong location and market?

The greatest disparity in cap rates between markets can be seen in the transactions recorded for non-credit rated tenants. At the height of the market, investors often looked at NNN net properties with the same overly optimistic view as their well-documented counterparts in residential real estate. Today, NNN net investors rightly focus on core real estate fundamentals, the survivability and strength of the tenant and the landlord’s ability to replace the tenant and rent should the tenant fail. NNN net investors are buying national non-credit rated tenants and local mom and pop shops in the elite markets if the performance and prospects of the tenant is known and the underlying real estate is strong. In D.C., the seller of a NNN net retail condominium with a local tenant operating a quick-serve restaurant in the heart of a thriving urban market sold at a 7 percent cap rate. By comparison, non-credit retail properties outside of the primary markets trade from 50 to 200 basis points higher than their primary market counterparts.

Have you seen a difference in debt terms based on geography or is it just on the investor side?

Debt terms do vary by market and tenant with a local lender the only prospect for debt in some markets. National lenders continue to pull back in many cities but insurers and the big banks are financing a great variety of transactions in the primary markets.

As the supply of NNN net property remains limited, do you see investors moving towards lower credit or other markets?

In today’s market, suitable NNN net investment property is hard to find. Quality NNNnet investment property is harder still. Perhaps hardest of all are the $1 million to $5 million size transactions where average investors focus their attention. For many of these investors, as with many of the REITs, the return will not be equal to the risks associated with non-credit tenants in secondary and tertiary markets and they will remain on the sideline.

www.calkain.com/read-more-news.

The European Markets Had Been Picking up, Partly Thanks to Banks Lending Again

NNN Lease Market

''The market had been picking up, partly thanks to banks lending again'',says Eric Sasson, who heads up the European operations at The Carlyle Group, the private equity firm. "But the Greece crisis put a hold to that. Having just got out of the freezing zone, banks went cold again – and some deals got delayed."
Concerns over the European markets have also kept international investors away. While the U.K. has attracted many big-ticket sovereign wealth funds and quasi-national pension funds from Asia and the Middle East over the past 12 months, the rest of Europe has been dominated by domestic institutions and property companies.
"There was a massive globalized real estate market in 2007," says Pierre Vaquier, chief executive of AXA Real Estate Investment Managers. "But then afterwards there was a 'flight to home' – as people wanted to go where they understand best."
Signs of a true recovery have therefore been seen in just a few core cities – markets that sovereign wealth funds and institutions know and understand: Primarily London, Paris and the five main German cities. For the first three quarters of 2010, investment volumes in the U.K., Germany and France accounted for two-thirds of all investment turnover in Europe, according to Jones Lang LaSalle.

online.wsj.com

As a tested market that has endured with investors, Reynolds, in her PIGS-versus-BRICs comparison, attests that despite the somewhat deceptive figures, European property still may be the way to go when it comes to investment. "On the face of it, the emerging economies look a better bet, however they will need resources to grow, both money and raw materials (witness the spate of lead thefts to supply China with base metal requirements). Some emerging markets have not yet got a proven, 'foreign property buyer' track record. Sustainability of the domestic, property markets will also be a key question to bear in mind, as well as how foreign property buyers are treated by regulation."