Shopping Center Business

MAY 2018

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

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PRIVATE INVESTORS 248 • SHOPPING CENTER BUSINESS • May 2018 traffic counts; accessibility; visibility; the number of parking spaces; proximity of parking spaces to the building's entrance; quantity and quality of direct competition faced by the tenants; whether the build- ing is sub-dividable, so that it can be re- leased in the event a tenant moves out or downsizes; rental rate; tenant creditwor- thiness; the tenant's exposure to Internet competition; the long-term viability of the tenant; lease language; and if there are title restrictions on the property. Mean- while, a property that is net-net, requires the landlord to be responsible for roof, structure and sometimes the parking lot. Such maintenance and repairs will have a direct effect on an investor's desired yield. For this reason, most investors seek out NNN properties where no landlord re- sponsibilities are required. SCB : Should individual investors be famil- iar with real estate investing before wad- ing into the waters of a net lease property? What is the typical investor's experience level with real estate? BRUNELLI : With the help of a highly ex- perienced investment sales broker, most investors should be able to understand what they can do with the equity they have available. In any case, the typical investor in properties of this type has a minimum net worth in the range of $3 million to $5 million, and has at least $1 million in liquid assets. Such a person would usually have experience in business, often a relat- ed field such as retailing or residential in- vestment properties. In many cases, these investors are developers who've built and sold properties without holding them, or individuals who've owned stores, restau- rants or service businesses in retail prop- erties. With the extraordinarily low yields that are available in bonds today, many investors are seeking higher returns. They also want to avoid the more extreme risks of the stock market. SCB : For buyers who need additional eq- uity, what types of financing are available to individual investors? What are the re- quirements for these vehicles? BRUNELLI : Banks are the typical source of financing for smaller acquisitions. For larger acquisitions, CMBS (commercial mortgage-backed securities) are often the go-to product. While complicated, CMBS may be the only vehicle in which an investor can procure an interest-only loan which satisfies their objective of cash flow, versus building equity, through a self-amortizing loan. Banks often require the purchaser's personal guarantee unless the investor puts down equity of 50 per- cent of the purchase price. Sophisticated lenders will look at all the characteristics of the locations in question as well as the creditworthiness of the tenants. The high- er the risk for the lender, the higher the interest rate for the borrower. In some cases, lenders will decide the loan doesn't meet their standards and will decline. Some lenders require payment of points or other fees to secure the loan or to se- cure an interest sought by the borrower. CMBS lenders typically require that more substantial reserves be set aside. The cred- it of the tenant or tenants in a CMBS loan typically needs to be very high-level so that the loan can be sold into the CMBS mar- ket. At that point, the loan will be given a grade such as AAA or AA. SCB interfaceconferencegroup.com/drr2018 Alicia Turlington 404-832-8262 aturlington@francemediainc.com REGISTRATION & GENERAL INFORMATION: Mike Jax 713-594-2000 mjax@francemediainc.com SPONSORSHIP & SPEAKING INFORMATION: Scott France 404-832-8262 scott@francemediainc.com JUNE 28 « 12 - 3 pm « FOUR SEASONS HOTEL INTERFACE 2ND ANNUAL CONFERENCE DENVER RETAIL REAL ESTATE Western Real Estate Business, Shopping Center Business and the InterFace Conference Group are pleased to announce the second annual InterFace Denver Retail Real Estate conference will take place on June 28th at the Four Seasons Hotel. This conference will discuss the changing retail environment and its effect on Denver Retail. Hear from the most active retail players from the Denver area on how they see retail growth and opportunities. Plus learn who is leasing, building, buying, selling and financing Denver retail. This event will attract attendees from throughout the Denver market including developers, investors, brokers, tenant representatives and retailers. If you are interested in or active in the Denver retail real estate market, you should plan to attend.

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