Shopping Center Business

MAY 2015

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290 • SHOPPING CENTER BUSINESS • MAY 2015 dian cap rate of 3.75 percent in the fourth quarter for locations not more than four years old, according to Northbrook, Il- linois-based Boulder Group. That was the lowest of any retailer with properties of a similar age. By comparison, newer 7-Eleven properties sold at a median cap rate of 4.75 percent and FedEx locations sold at a median cap rate of 6 percent in the fourth quarter of 2014, the broker- age says. Investors also have displayed more in- terest in fitness facilities, Fritz says. Fit- ness properties today trade at cap rates of around 6 percent, 400 basis points lower than where they were selling five to six years ago, he explains. He recently sold a fitness property after receiving at least 10 offers on it. A few years ago, he adds, few buyers were interested in such deals because of concerns about parking and doubts that the gyms drove traffic to other retailers. But investors have warmed to the properties, which have created more daily traffic and steady income as they've proliferated around the country. "Investors didn't like the use to begin with," Fritz says. "But more people are working out as America has become a more health-conscious market, and inves- tors have become much more comfort- able with it." Regardless of the user, a lack of avail- able properties is contributing to cap rate compression, professionals acknowledge. In many cases buyers are more focused on the location than the use, suggests Rick Fernandez, managing director with Calkain. "Demand has been fairly constant, but at Calkain we continue to see a shift to quality," he says. "Triple-net investors are willing to pay a premium for quality real estate with strong fundamentals, even if the tenant is not as strong." Debt DRiven Observers also recognize that plentiful and historically inexpensive debt is driving the activity, which harkens to the real es- tate lending environment before the Great Recession. While underwriting generally remains stronger than before the collapse, some professionals wonder how much an eventual interest rate hike will affect prop- erty values. In early April, the 10-Year Treasury yield stood at around 1.9 per- cent, a year-over-year decline of roughly 70 basis points. "We know there are cycles, and we know we've been in an unprecedented period of subsidized low interest rates," says Sean O'Shea, managing director of the O'Shea Net Lease Advisory of Los An- geles-based BRC Ad- visors. "So is this the way it's always going to be? The answer is 'no'; it can't be." Freely flowing capital certainly has allowed private in- vestors such as 1031 exchange buyers to become more active in the market, sug- gests Jim Shipman, a partner and senior vice president of net lease investments for PECO Real Estate Partners in Salt Lake City. Indeed, private investors accounted for 60 percent of net Tom Fritz Rick Fernandez Chicagolands Newest Hotspot for Development ! Access, Location, New Rooftops, Economic Opportunity www.discoverlakemoor.net New Opportunites Await in Lakemoor, Illinois Located in one of Illinois' most competitive and growing Chicago metropolitan markets. Direct access to high traffic regional transportation corridors. Market gap/leakage of nearly $300 million in unmet demand potential for Retail/Food and Drink establishments. Strong government support with a team of experienced staff and professional development consultants to assist. Multiple priority development sites for large and small scale development, expedited approval process, and motivated public- private partnerships with prominent real estate firms such as: PLUS: Tax Increment Financing (TIF) and Retail Sales Tax incentive s. "From start to finish, commercial development in Lakemoor was effortless and mutually beneficial to both the village and the developer". Craig Whitehead, CCIM, CPM, CRX, Executive Vice President, The Crown Group, Inc. Lakemoor, Illinois is ready to do business with you! To schedule a meeting with us at ICSC-RECON in Las Vegas on May 17th-20th please contact: McHenry Lake Kane Cook DuPage Kendall Will Lakemoor Matt Dabrowski Village of Lakemoor 815-385-1115 mdabrowski@lakemoor.net Terry McCollom McCollom Realty 708-383-6450 wrmccollom@mccollomrealty.com Sean O'Shea

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