28 Jan 15 By Cole Flanagan, CPA, MBA No Comments

Where Opportunity Lies in Net Lease

IRVINE, CA—Looking to secondary and tertiary markets and tenant quality are where the greatest opportunities lie in the net-lease sector, industry experts tell GlobeSt.com exclusively. We asked several net-lease professionals what they predict to be the greatest areas of opportunity in this sector, which suffers from lack of supply and an overabundance of demand. Check back later this month for an upcoming feature story in Real Estate Forum that delves into the subject of net lease on a more in-depth basis.

GlobeSt.com: Where do the greatest opportunities lie in net lease?

Edward Hanley, president, Hanley Investment Group: The greatest opportunities lie in finding the best-performing stores in those secondary and tertiary markets. That is where the supply is going to be. These opportunities come from diving in and understanding the opportunities based on location, rental rates and other sales in the area; these factors are going to point to an opportune property in which an investor can achieve an above-average return that is risk adjusted.

Rick Chichester, president and CEO, Faris Lee Investments: The greatest opportunities are not market-driven anymore. Core, secondary and tertiary markets don’t have significant pricing disparities. What it really comes down to is the quality of the tenancy, term, rate and rent-to-sales. In addition to credit-rated tenants like McDonald’s, Taco Bell and CVS/pharmacy, there are new and expanding brands such as Shake Shack, which recently completed an IPO. It represents a solid concept appealing to the needs of today’s consumer.

Adam Petriella, EVP, Coldwell Banker Commercial Alliance: With interest rates remaining considerably low, the pursuit for considerable returns appears to be a daunting task. With that being said, those in pursuit of these returns may augment their exploration into the secondary and tertiary markets where product will be more readily available. Others may even look toward tax-free states such as Florida, Arizona, Nevada or Texas for net-lease opportunities.

Gino Sabatini managing director and co-head of global investments, W. P. Carey Inc.: Great opportunities come from being creative and flexible. As an example, being able to work with developers and tenants who are looking at a staged process for developing and occupying a new or existing building can be more complicated. Given our experience, we have bene able to structure these types of transactions successfully and, at the end of the day, provide a “win-win” solution for the tenant, developer and ourselves.

Craig Tomlinson, senior director, Stan Johnson Co.: For buyers, the greatest opportunities lie in finding a solid real estate asset that happens to have a single tenant. The corresponding challenge is picking through the virtual shelves of overpriced or “blemished” properties to find your deal; that’s where a good broker can really help you. I’m constantly surprised at the smart sellers that engage with brokers to sell their apartments, but then try to source and qualify one or several net-lease properties on their own. They usually miss important details that wind up disappointing them later.

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BY Carrie Rossenfeld
JAN 21, 2015