CORONA DEL MAR, CA—The demand for well-located single-tenant triple-net leased investments leased to credit retailers and multi-tenant retail centers with internet-resistant credit tenants will remain strong. That is according to Hanley Investment Group Real Estate Advisors, a nationally-recognized real estate brokerage and advisory firm specializing in retail property sales. The Corona Del Mar, CA-based company recently revealed that it had closed out 2017 with total sales volume in excess of $562 million, which represents more than an 18% increase in the number of transactions over the previous year.
“2017 was one of the best years ever for Hanley Investment Group,” Ed Hanley, president of Hanley Investment Group, tells GlobeSt.com. “We closed deals in 25 different states in 2017, ranging from anchored shopping centers to multi-tenant retail strip centers and single-tenant properties. We worked with publicly-traded real estate investment trusts, family trusts, partnerships and private investors.”
And more than half of those closings were outside of California, he adds, which “speaks to investors willingness to seek comparable investment opportunities in secondary or tertiary markets across the country to meet their investment requirements as yields for high-quality, stabilized, internet-resistant single-tenant and multi-tenant retail in primary markets remain compressed.”
Some of the noteworthy deals include the sale of a rare fee-simple ground lease for 5.32 acres on South Lake Avenue in Pasadena, CA, in January. Hanley Investment Group sourced more than 20 qualified offers were procured for the Macy’s shadow-anchored property, and it closed within 30 days for a sale price of $15.13 million.
Hanley Investment Group also represented the buyer in an off-market transaction in the sale of the fee-simple land beneath the Newport Beach Tennis Club in September. The land consists of approximately 7.6 acres adjacent to Eastbluff Village Center, anchored by Ralphs Fresh Fare supermarket and CVS/pharmacy in Newport Beach, California.
Some of the significant multi-tenant highlighted deals include the sale of Arcadia Gateway Center, a 156,046-square-foot, mixed-use commercial center comprised of retail, medical and office buildings in Arcadia, CA, which sold for $62.1 million in January, representing a cap rate of 5.4, the lowest cap rate for any property of its kind in the State of California in 2017, according to CoStar.
In June, Hanley Investment Group represented both the buyer and seller in the sale of Oak Grove Crossing in Lake Elsinore, CA, a 22,577-square-foot shopping center shadow-anchored by Target, which sold for $11.6 million.
In July, Hanley Investment Group arranged the $28.6 million sale of Sierra Del Oro Towne Centre, a 110,004-square-foot Ralphs grocery-anchored shopping center in Corona, California. The buyer was Phillips Edison & Company of Cincinnati, Ohio. Also, Hanley Investment Group served as an advisor in bringing the buyer and seller together in the sale of five shopping centers owned by Phillips Edison & Company, one of the nation’s largest owners and managers of grocery-anchored shopping centers. The buyer was a private commercial real estate investment company based in Beaumont, Texas. The retail properties, which were located in either a secondary or tertiary market, totaled 583,337 square feet. The properties that traded were Quincy Plaza in Ottumwa, Iowa; Kokomo Plaza in Kokomo, Indiana; Catawba Village in Newton, North Carolina; Lakeside Shopping Center in Anderson, South Carolina; and Louisa Plaza in Louisa, Kentucky.
In addition to grocery/drug-anchored shopping centers and multi-tenant retail strip centers, Hanley Investment Group sold numerous single-tenant properties located throughout the US. In January, Hanley Investment Group, in association with Citi Property Services Inc. of Santa Clarita, CA, completed the sale of a new construction single-tenant Starbucks with a drive-thru located in Redlands, California. The purchase price of $2.6 million represented a cap rate of 3.76%. According to CoStar, this sale achieved multiple records—one of the lowest cap rates nationwide for a single-tenant Starbucks and one of the lowest cap rates for a fee-simple Starbucks in Southern California.
In July, Hanley Investment Group completed the sale of a rare Walgreens flagship store in Honolulu, Hawaii, for $42.25M ($1,172 psf), one of the highest prices paid for a Walgreens store in the retailer’s history. The buyer was a Korean investment firm in Los Angeles. Hanley Investment Group represented the seller, along with Eastdil Secured LLC. Built in 2015, Walgreens occupies the 36,058-square-foot freestanding building under a long-term lease.
Another record-low cap rate was the sale of a brand-new single-tenant McDonald’s ground lease in the City of Azusa, California, in October. The purchase price was $3.54 million, which represented a cap rate of 3.25 percent, the lowest recorded closing cap rate for a new construction McDonald’s in the U.S. on record, according to CoStar. Hanley Investment Group represented the seller, along with SRS’ National Net Lease Group.
In September, Hanley Investment Real Estate Advisors completed the sale of a single-tenant net-leased retail property occupied by Circle K at 5850 W. Indian School Road in Phoenix, AZ. The purchase price was $1.3 million, which represented a cap rate of 4.62%, the lowest recorded closing cap for a Circle K in the US in 2017, according to CoStar.
Many of Hanley Investment Group transactions set or made the market and impacted future pricing for other properties. “These achievements were the result of careful evaluation of the asset, helping sellers to maximize the asset’s value, overcoming buyer objections to any tenant lease issues; and having a comprehensive database of investors and the relationships to source buyers for the properties,” Hanley tells GlobeSt.com. “Rising interest rates are at the top of everyone’s mind and continue to have a direct impact on investors’ purchasing decisions,” explains Hanley Investment group executive VP Bill Asher. “As low as 2% in September 2017, the 10-Year Treasury yield has climbed as much as almost 3% in 2018, trading at a four-year high. If interest rates continue to go up, it will certainly continue to affect retail transaction velocity this year specifically for properties priced $10 million and up that are traditionally dependent upon financing. Single-tenant net-leased retail sales priced $5 million and less will continue to experience consistent sales due to a significant number of buyers transacting all-cash.”
Asher reports that according to CoStar, the average cap rate and total number of transactions for all retail sales in California (priced over $1 million) were almost identical year-over-year 2016-2017. The average cap rate for both years was the same at 5.56%, while the total number of sales was 1,019 in 2016 compared to 1,039 in 2017. The major difference was total sales volume, which declined $1.1 billion in 2017 ($6.54 billion) from 2016’s total of approx. $7.63 billion.
“2017 saw a larger number of community and power shopping centers not selling or seeing pricing adjustments due to store closures and consolidation, as well as the continued impact of online retailing and Amazon,” Asher adds. Retailers will need to adapt to an ever-changing new normal. “Daily-needs retailers including a focus on food and service-related retail will continue to expand and thrive in the near future,” Hanley notes. “Grocery-anchored shopping centers with reported successful sales and a complementary mix of internet-resistant retailers will continue to be in high demand and command top of the market pricing.” According to Hanley, record pricing for unanchored multi-tenant retail has plateaued. “Even with the recent spike in interest rates and reportedly, more hikes to come, investor demand for new, well-located single-tenant triple-net leased investments leased to credit retailers will remain strong. Buyers will continue to pay premiums for these types of properties seeking long-term stable cash flow, with relatively low risk and little to no maintenance.”
What does Hanley see for 2018? “If January’s recent activity of closed transactions, upcoming new listings, and a multitude of buyer requirements are any indication to how the rest of the year will go, we anticipate it’s going to be another busy year.”