Single Tenant Net Lease Sector Update

[Music] welcome to America's commercial real estate show your source for market Intel forecasts and success strategies hello i am michael ball the excitement's brought to you by by-proxy comm check it out it's a complimentary service to find properties or lifts list properties and also you can pay for some marketing it's by proxy Thomas bi P ro x i.com it's a new service check it out well today we're going to talk about single tenant net lease investment properties you know the drug stores the quick service restaurants that the freestanding buildings you see they're all around the country and it's interesting to note how these properties are being impacted by rising interest rates think about the impact of single tenant net lease investment properties from people who have had a big rise in values from their multifamily properties or their industrial properties or any multi tenant properties a lot of those folks are are selling those in 1031 and exchanging tenth or exchanging into these single tenant net lease properties but how they be infected by the government shut down how they be impacted by rising interest rates how they be impacted by more the shared economy it's the things going on around the world today well let's find out today please welcome my guest first of all Nancy Miller she's a CCIM she's an MBA and she's a partner with bull Realty she leads the single tenant in that lease investment group at bull Realty Nancy thanks for being with us thanks Michael glad to be here also Andrew zippers here with us he's a managing partner with Greenleaf Greenleaf triple net holdings Andrew thanks for being with us sir thanks for having me - great and guys I'd like to start asking you with this you're you of heavy into this single tenant net lease investment property what's the market like right now they have the velocity of sales that the kind of opportunities you're finding out there well I can start on that the velocity is slightly down from last year I got a couple stats that might be of interest on nationwide we had last year about nineteen hundred and ninety five transactions in 2017 2018 it's down believe it or not about 20 percent to about a little 1,600 transactions so velocity is down average price point is about the same cap rates are also about the same we would have thought that they would have started to rise now with interest rate changes but they really haven't yet well its interest because you think it was so how long do these properties typically on the market on average the surprisingly a property is on the market anywhere between hundred and forty days if it's a smaller one to two million dollar price range and up to 195 days if it's a two to six million dollar type price point and that seems to be a launch seems to me like it's a long time is it because sellers are trying to push that that cap rate and and push that value at sellers I think that's a good piece of it I think sellers not to offend any you know of your listeners are still kind of wanting to get the top dollar they're a little bit not greedy but wanting to push that envelope and so long as interest rates don't really really go up that high it's possible that they can wait it out and get what they want because they have a fear if I sell I'm gonna buy in at that low cap rate too even though I bought in at a higher cap yeah and you want to offend our listeners because they've already got great advice for me a buy low sell high right so they already that's great so Andrew you guys are out there acquiring single tenant net lease properties how do you see the market and the cap rates and the opportunities out there today well for me every day I'm looking at a hundred listings that are coming in my email box ninety nine of them are low cap rate four or five cap some of them are just I don't understand some of the business models where these chick-fil-a's and the Starbucks are selling for four caps maybe low five caps I just don't understand it so number one these are buyers who are buying stuff with all-cash and you're just putting money away for a little bit and and trying to get something better than a bank would give you so we're not doing that we we actually try to get a better rate of return on our money so we're looking at the higher cap rate properties prop with shorter leases with long-term we we honestly try to find the best of both worlds we're trying to find high cap rates quality quality property and quality guarantees did you send my show the bio part that I'm my advice I because there are times and a lot of investors in the single tenant at least world like it because the default rates are really low they're very safe there's not a lot of moving parts right is triple net the tenants are paying the taxes assurance the main is it's a kind of mailbox money sometimes you mentioned that sometimes to get a better deal potentially you may be looking at leases with I mean properties with shorter leases what are you seeing for a difference on average when from your desk of a 14 year lease and maybe a four year lease well we take risks and so we actually almost had a deal under contract with a 15 year lease at a seven and a half cap and that was just that was the Nigel situation the the seller actually called their listing which was a little unfortunate for that but all of the deals we're looking at right now are between five and ten year leases we where we have learned that all seven and a half cap deals are not the same some of them are about to go to business and some of them the investor just wants to sell so we're trying to find the properties at the decent cap rate that have long term viability at that location with good guarantees and they're not going out of business and next year so yeah we we one of our top metrics is sales so we're looking at sales constantly we're looking at with the sales or for the location how do how does that location sales compared to other locations sales and the sales within the brand itself now some tenants don't report sales so if you're looking at a property like that and you can't really get the sales do you stay away from them or what do you do I am real good at going to eat lunch at those places and and talking to the store manager again and trying to get the whisper number out of them so we have to do our due diligence we we do a we have business partners we go into these properties with we are doing dead my name is on the debt a lot of the time so I want to make sure you know the property's going to there for a while so I'm doing my personal due diligence to make sure that their sales are what I think they are in fact a property that doesn't tell us sales and we don't get a whisper number we usually stay away from that makes you nervous yeah yeah we just don't know in fact yeah I looked at a restaurant last week and the manager sat down for 20 minutes awesome conversation and he told me his sales and were decided not to do no one told me and what are the sales that rental revenue ratio is that sales to to revenues that you see is it you want something under six under ten well Q s are so fast food restaurants were typically targeting about 8% but it depends on that on the vertical so like a Ruth's Chris I've heard with Chris can be up to 5% rent to sales but some of the larger restaurants like and on the border might be a little bit higher because it's a larger footprint and so the rent is always going to be higher because the stores big and so your rent to sales ratio gets a little bit out of whack but it still makes sense because it's a big location and stored as well one of the benefits we've had in commercial real estate world is positive leverage we're getting higher return on the properties we're buying if we pay cash and our cap rate then the financing so Nancy what do you see and today we're still getting positive leverage on some of these single tenant and Hayley's properties what are interest rates on single tenant how do lenders look at these today well the typical net lease investor is going to do a 65% LTV 35% down using that and as a 25-year amortization I have a couple stats I just got from my one of my handy folks here and what's interesting is while rates have crept up 17 they were about four and a quarter at four and a half eighteen four point seven five to five they've just come back down and they're averaging right now somewhere between four point six to four point eight five depending on the quality of the tenant depending on the remaining lease term depending on if that lender hasn't taken on too many of that brands sometimes if they have a lot of dollar stores they don't want anymore dollar stores and so forth but I think is Ark my crystal ball yours and Andrews we don't know what the feds are going to be doing over time but right now is a very good time for people to get their toe back in the water to work on the spread between a cap rate and an interest rate with 65 percent down they'll have some Popat positive leverage yeah it's a good point rather it's single tailor any property but you're looking at buying or selling right now we've had a reduction in the treasure bill we've got reduction in interest rates you know kind of a window you know because the amount of fat is mentioned there they are going to do at least a one at rate increase next year or indicating that they probably will so it is a nice window right now isn't it it is yes so so what are you seeing from Andrew when you're out there looking at properties today what kind of categories or tenants are maybe you're nervous about what categories in tennis you can I feel comfortable with well first of all to kind of go back to one of your points we actually financed two of the same property is in 2017 and 2018 we financed one for mid fours and literally the same property the next year was five and a half so interest rates are in just a year of when a ball point that's a pretty big deal so our box greenly if we tried to make our box pretty small we started out with any sort of triple net deal auto parts restaurant categories banks we looked at even at a couple of Planet Fitness but we narrowed our box into the food category so we're doing Q s our quick service restaurants fast casual and casual dining so any anything that you eat at maybe a step below a a Ruth's Chris we will look at right now and we're looking at um fundamentals of real estate we're looking at good locations so a property that doesn't have a reuse capability we don't look at we look at quality guarantees and the quality guarantee doesn't necessarily have to be somebody who owns and operates two or three hundred restaurants it has to be somebody who has been there for a long time as a viable business one of my most successful deals right now is an operator of approximately five units of a fast food restaurant and he's um it's a great easy great timing we're good well today we're gonna take a short break when we get back when I ask you guys some tips for maybe some ways to get some higher returns and some mistakes to avoid so stay with us I'm Michael Ball this is America's commercial real estate show [Music]

Channel: America's Commercial Real Estate Show

Views: 794

Rating: 5 out of 5

Keywords: agent, akb media, america's commercial real estate show, broker, bull realty, commercial real estate, commercial real estate agent, commercial real estate show, commercial real estate training, cre show, forecast, guide, industrial, industry, investing, landlord, leasing, marketing, michael bull, multifamily, office, real estate, strategies, success, tenant, tips, training, video, youtube, youtube video, zoning

Id: HabK-UO27Ts

Length: 12min 10sec (730 seconds)

Published: Thu Feb 28 2019