Investors are Buying NNN Lease Properties in Primary Markets

NNN Lease Market News

Opportunity Investors are Buying up Semi-Vacant Office Buildings, Retail Centers and Apartments in Primary Markets.

 Lenders are more likely to be interested in financing deals in a secondary market if they know that specific market is in recovery mode, says Ryan Krauch, principal at Mesa West Capital, a portfolio lender based in Los Angeles. “We can get very comfortable in markets we believe have come to a low point in their cycle.”

Mesa West has placed approximately $750 million in commercial real estate loans since the third quarter of 2010. In particular, the lender seeks to finance Class-A properties that stand to benefit from local tenants upgrading to higher-quality space.

That was the case earlier this year in Phoenix, where Mesa West provided a $40 million mortgage loan to finance two prominent office buildings known as Anchor Center. “You'll definitely see money flow first to the highest-quality, best-located properties in those secondary markets,” says Krauch.

 Investors who buy distressed properties or acquire assets in markets where property values are only beginning to stabilize may have to wait several years before those properties generate income, much less a profit.

Merage of MIG Real Estate says that's a risk he is willing to take because he believes that the economic recovery will eventually usher in steady rental income and healthy property values.

“We're a patient investor, so it comes down to the long-term viability of the marketplace that we're pursuing,” he says. “In a lot of these markets, it's going to be a long time before we see a significant recovery.”

Low interest rates mean leverage is affordable, but it is still challenging to find lenders who will finance deals in secondary and tertiary markets. “Capital is being very selective,” says Ronen of Lucent Capital. “We're reaching out to 50 or 60 different capital sources to find two or three that are willing to finance a deal.”

Lenders may offer higher loan-to-value financing on high-quality assets with partial vacancy, or in a market where property values have bottomed and are poised to appreciate as the economy recovers, says Ronen.

That's because the lender understands that the asset's value and cash flow will likely increase over time, which decreases the relative size of the debt on the appreciating property.

By contrast, prices on core assets in primary markets reflect a maximized income stream, leaving little room for value appreciation after an acquisition.

From a trough in December 2009 to March of this year, prices of non-distressed, trophy properties in primary markets had risen 26.7%, according to Moody's Investors Service. That's based on an index of properties valued at $10 million or more in the largest U.S. markets.

http://www.sacommercialpropnews/

Foreign Investors Often Make the Mistake of Looking at U.S. Real Estate as a Safe Haven

NNN Lease Market News

Africa Israel has struck agreements to sell a major piece of the former New York Times headquarters and the landmark Clock Tower building overlooking Madison Square Park in Manhattan, both at steep losses. It also has unloaded numerous parcels of land in Florida.

Africa Israel, headed by diamond-industry billionaire Lev Leviev, is the latest overseas company to run aground in the U.S. commercial market. In the late 1980s, Japanese investors purchased such iconic properties as Rockefeller Center and the Pebble Beach golf resort, only to suffer losses during the early 1990s recession.

Foreign investors often make the mistake of looking at U.S. real estate as a safe haven. "The U.S. market is one of the most transparent, the government is stable and foreigners often invest with a long-term horizon," said Mark Edelstein, head of the real-estate group at law firm Morrison & Foerster LLP. "The problem is they often buy near the top of the market and overpay."
In 1997, Mr. Leviev purchased a controlling interest in Africa Israel, a public property-investment company founded in 1934 by Jewish investors from South Africa. Under his leadership the company expanded into new markets like the Philippines and Russia, where Mr. Leviev developed a friendship with Vladimir Putin, now the country's prime minister. Projects developed by the company's Russian arm include AFIMall City, a giant retail complex in Moscow that opened in May after delays.

During the late stages of the U.S. real-estate boom, Africa Israel began making highly leveraged bets in big cities. Unlike many foreign investors, which tend to buy stabilized properties with solid cash flows, Africa Israel made highly speculative bets, buying up empty tracts of land and trying to convert office buildings to condos. It issued bonds in the Israeli market to finance much of the buying, racking up debt of 7.8 billion shekels by the end of 2009.

Craig Karmin at craig.karmin@wsj.com

Institutional Investors and Real Estate Investment Trusts Back in the Market in a Big Way

NNN Lease Market News

Institutional Investors and Real Estate Investment Trusts Really Back in the Market

Demand for prime properties is rising as Manhattan office leasing improves and buyers seek to put capital to work. Institutional investors and real estate investment trusts led purchases, making almost two-thirds of deals in the first six months of the year, according to Cushman.
“The institutions and pension funds are really back in the market in a big way,” Joseph Harbert, Cushman’s New York-area chief operating officer, said in a briefing for reporters.
“The smart REIT money got active in the market in ’10, and is still very active. The foreign money as a percentage now is not as active.”
Properties priced at $100 million or more are “selling at a very brisk pace” and driving the market while lower-end sales are more sluggish, according to Robert Knakal, chairman of commercial-property brokerage Massey Knakal Real Estate Services, which also issued a report today on Manhattan sales.
The average deal price for the first half of the year was $13.1 million, higher than the $12.3 million reached at the market’s peak in 2007.The high end is recovering, but otherwise the market is kind of slogging along,” Knakal said. “It is taking longer to gain the traction that we like.”

http://www.bloomberg.com/

Dunkin’ Brands is Offering 22.3 Million Shares

NNN Lease Market News

Dunkin’ Brands is Offering 22.3 Million Shares for $16 to $18 Each

Taken private in 2006 by Bain Capital LLC, Carlyle Group and Thomas H. Lee Partners LP, Dunkin’ follows private equity- backed companies such as HCA Holdings Inc. and Kinder Morgan Inc. in returning to the public market this year after leveraged buyouts. Private equity owners have completed the biggest U.S. IPOs in 2011 as a rising U.S. stock market increased investors’ demand for companies acquired through debt-fueled acquisitions.
“After the market has done so well, from a timing point of view it’s a good idea to get it done now,” Hugh Johnson, who oversees about $2 billion as chairman of Albany, New York-based Hugh Johnson Advisors LLC, said in an interview. “If I were in the private equity business, I’d be trying to raise liquidity as fast as I could.”
The doughnut chain has more than 16,000 locations in 57 countries under the Dunkin’ Donuts and Baskin-Robbins brands, according to the filing. Bill Rosenberg founded his first restaurant in the 1940s, which was later renamed Dunkin’ Donuts.
The stock will trade on the Nasdaq Stock Market under the ticker symbol DNKN.
Dunkin’s offering is being led by JPMorgan Chase & Co. (JPM), Barclays Plc, Morgan Stanley, Bank of America Corp. and Goldman Sachs Group Inc. (GS)
The company aims to complete the offering by the end of July, two people familiar with the plans said last month. The timing of the IPO is subject to change based on market conditions and demand for the shares.

http://www.bloomberg.com/

Retail Market is Expanding in Georgetown D.C.

 NNN Lease Market


Most observers agree, though, that Georgetown's retail market is expanding


Coming debuts include clothier Brooks Brothers, which is opening a 20,000-square-foot store in September, men's store Jack Spade and Williams-Sonoma Inc.'s West Elm furniture division, soon testing the market with a store on a six-month lease.
"Ten years ago, Georgetown was a mom-and-pop market," said Michael Zacharia, a senior vice president in Washington for brokerage C.B. Richard Ellis Group Inc. "Now, we see national brands in the market and luxury brands looking to enter."
The evolution of Georgetown's retail market mirrors others, like Denver's Lower Downtown and Seattle's Capitol Hill, where populations are returning to downtowns for shorter work commutes and smaller homes in renovated buildings and towers. Retailers, in turn, are chasing the higher incomes and density that result from that trend. In some cases, that results in concerns national retailers are displacing local, independent shops that may make a given urban neighborhood unique.
Some brokers and property owners, including Mr. Lanier, say chains are taking a larger share of the market. However, Jim Bracco, executive director of the Georgetown Business Improvement District, said independent stores still account for three-quarters of the neighborhood's retail market.

http://asia.wsj.com/home-page

Retailers Posting Results that Beat Expectations

NNN Lease Market News

 85 % of Retailers Posting Results that Beat Expectations

 Monthly retail sales at stores open at least a year rose 7.2 per cent from last June, with 85 per cent of retailers posting results that beat expectations, according to Retail Metrics.

The figures heightened optimism over the crucial back-to-school shopping season and signalled a narrowing of the performance gap between retail leaders in the discount and luxury sectors and their mid-market laggards.

 

 

Continuing a trend of recent months, the luxury sector also posted strong growth with sales up 11.9 per cent at Saks, the upmarket department store, and 12.5 per cent higher at Neiman Marcus, one of its main rivals.

In the mid-market segment – which has been hit hardest by consumers’ cash woes – Gap posted a 1 per cent gain in sales that defied forecasts of another monthly decline as it struggles to revitalise its business.
Revenue at its Banana Republic chain, which offered heavy discounts last month, rose 3 per cent.
Among mid-market department stores sales rose 6.7 per cent at Macy’s, 2 per cent at JC Penney and 6 per cent at Dillards.
Limited, which runs the Victoria's Secret chain, posted a 12 per cent rise in same-store sales.

http://www.ft.com/intl/cms

Vacancy Rate at Malls Increased to 9.3%.

NNN Lease Market News

Vacancy Rate at Malls in the top U.S. Markets Increased to 9.3%.

The average vacancy rate at malls in the top 80 U.S. markets increased to 9.3% in the second quarter from 9.1% in the first, according to real-estate research company Reis Inc. Those vacancy figures are the highest Reis had recorded for malls since it started tracking malls in 2000.
Meanwhile, average lease rates at U.S. malls remained steady at $38.77 per square foot per year, unchanged from the first-quarter rate, according to Reis.
Clearly, retailers want to be in the best and strongest locations," said Michael Glimcher, chairman and chief executive of Glimcher Realty Trust, owner of 23 U.S. malls. "If you're in a big market, you better be one of the top malls [there]." Mr. Glimcher said he foresees his malls reaching an average of 95% occupancy later this year from 94.1% in the first quarter and 92.6% a year earlier. In the second quarter, Glimcher signed shoe seller DSW Inc. to replace bankrupt bookseller Borders Group Inc. at its Dayton Mall in Dayton, Ohio.
Reis calculates its averages for vacancy and lease rates by sampling 40% of the retail properties each quarter in the top 80 U.S. markets.
Corrections & Amplifications: Malls in the top 80 U.S. markets in the first quarter posted an average lease rate of $38.77 and strip-mall centers registered an average of $16.54. An earlier version of this article incorrectly reported the figures as $16.54 for malls and $38.77 for strip centers.

http://online.wsj.com/article/