Shopping Center Business

MAY 2016

Shopping Center Business is the leading monthly business magazine for the retail real estate industry.

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NET LEASE 170 • SHOPPING CENTER BUSINESS • May 2016 "Limited construction is the main driv- er of the decline in supply," Blankstein states. SELLER'S MARKET Foreign investors that prefer a tepid economy in the U.S. to the lack of any growth in other countries continue to buy net lease assets, especially in major markets on the coasts, observers say. Insti- tutional net lease investors remain buyers, too, but some are ratcheting up disposi- tions to take advantage of strong demand. Four of the largest publicly traded net lease REITs that predominantly invest in retail properties – National Retail Prop- erties, Store Capital, Realty Income and Spirit Realty – have indicated that they'll pare back acquisitions and sell more as- sets this year than in 2015, according to statements and financial disclosures made by the companies. Looking at their combined transaction activity, National Retail, Store Capital and Realty Income acquired nearly $4.1 billion and sold $47.4 million net lease properties in 2015. Together, those three REITs pre- dict that they'll spend $2 billion on acqui- sitions and sell upwards of $250 million in 2016, according to their guidance. While Spirit Realty doesn't provide guidance, ex- ecutives during the company's fourth quar- ter earnings call in February projected that the REIT would be a net seller of assets in the first quarter this year after disposing of $547 million and acquiring $889 million of properties in 2015. Tom Nolan, chairman and CEO of Spirit Realty, told investors that the REIT would seek to take advantage of a 1031 Exchange market that was "on fire" to pare off some its non-core properties. To illustrate the point, he revealed that the company had just completed the sale of a Taco Bell/KFC at a 5.7 percent cap rate. "We're at an interesting time where the market is a little volatile, so we're being very cautious in terms of the acquisitions we're looking at," he said. "Yet at the oth- er end of the spectrum, we've got a very robust acquisition market for the type of assets we own." DEBT RIDDLE The ability of 1031 Exchange buyers and other investors to complete net lease deals without debt — or with leverage amounting to only around 60 percent of the transaction — could give them an advantage over buyers that need more financing as a handful of forces cloud lending markets. Stock and bond market volatility early in the year prompted investors in commer- cial mortgage-backed securities (CMBS) to demand higher returns, for example, which effectively shut down CMBS deals. CMBS issuers sold only $9.5 billion in the first quarter this year, a paltry figure that's far behind the $26 billion that closed in the same period in 2015. It also all but dashed hopes that CMBS issuances in 2016 would approach or build on last year's total of $95 billion. On top of that, Trepp's es- timate that some $205 billion in CMBS loans will need to be refinanced through The Boulder Group represented a high net-worth individual who sold a suburban Kansas City Walgreens in January for $6 million. The buyer, a Northeast-based real estate investor, accepted a cap rate of 5.86 percent. Bialow takes you where you need to be. Our experienced team is skilled at tailoring a regional or national expansion plan that meets each retailer's individual needs. 781.444.2316 | bialow.com 5th AVENUE or MICHIGAN AVENUE

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