Hanley Investment Group Real Estate Advisors, a nationally recognized real estate brokerage and advisory firm specializing in retail property sales, recently completed the second transaction in the break-up sale strategy of the 99 Cents Only-anchored Zinfandel Crossings in the Sacramento metro area. Ed Hanley explains the strategy behind the multiple-step transaction, and some of the considerations involved in this type of deal in our latest 3 CRE Q&A.
Q: How is this break-up strategy a good match for today’s investors and sellers?
A: The break-up strategy provides an opportunity to maximize value for the seller through individual sales to private, non-institutional investors. In today’s market, deals in the price range of $2 million to $5 million appeal to the largest buyer pool. Hanley Investment Group has been able to achieve cap rates approximately 100 basis points lower in break-up sale strategy executions, as compared to selling the property as a whole. We expect the demand for both single-tenant and multi-tenant pad buildings in major markets throughout the U.S. to continue to be strong, especially from the private investment community.
Q: What are some of the opportunities and challenges as compared to more traditional transactions?
A: There are many options and considerations including whether or not the property is already parcelized, and if it is parcelized, will this meet the requirements of the targeted buyers. Depending on the property strengths and sales strategy, different parcels might appeal to different types of buyers. For example, one multi-tenant retail pad building might have a large vacancy that would be perfect for a value-add investor/developer that wants to reposition a major tenant space. A new 20-year absolute triple-net lease with a corporate guarantee for a national credit tenant occupying a single-tenant retail pad building at a hard corner intersection might appeal to an investor that is looking for management-free, reliable cash flow. The challenge for some property owners is that they may not have the time to parcelize their property, or the ability to sell their shopping center in pieces due to partnership owner agreements.
Q: What are some examples of deals that Hanley Investment Group has been involved in?
A: Recently, Hanley Investment Group closed escrow on a two-tenant retail pad building occupied by Chipotle and Firehouse Crawfish restaurants, the second pad sale in the break-up play at Zinfandel Crossings located in the Sacramento metro area. The previous sale was the 99 Cents Only store and inline shop buildings totaling 54,004 square feet, which offered a great value-add opportunity. Hanley Investment Group is now marketing a five-tenant, 100% occupied retail building at the center.
Other break-up plays in process include Lake Elsinore Marketplace, a Costco-anchored shopping center in Lake Elsinore, CA; Derby Marketplace, a Target and Dillons-anchored center in Derby, KS.; Eastvale Marketplace, a Smart & Final-anchored center in Eastvale, CA.; and Highland Village, a Sprouts-anchored center in Fontana.
Last year, Hanley Investment Group completed sales of six separate pad buildings within Perris Marketplace, a Walmart-anchored shopping center in Perris, CA, which resulted in an improved value of approximately 100 basis points with an effective cap rate compared to selling the entire center as a whole.