A discussion with Bill Asher and Jeff Lefko as it appeared in the January 2021 Print edition of Shopping Center Business.
We expect the strong momentum of investor demand experienced in 2020 to continue into the new year and be the highest for STNL assets that performed well during 2020, especially drive-thrus (i.e., coffee, fast-food and quickservice restaurants) as well as convenience store/gas stations, grocery and drug stores, financial institutions, dollar stores, auto parts and services, express car washes, and healthcare (medical, dental and vision).
During the height of the pandemic in 2020, the perception was that no deals were getting done. However, in the third quarter 2020, 6,243 retail transactions were completed nationwide, which is more than a 44 percent increase in transactions over the previous quarter (but 29 percent less compared to the same period in 2019). And now, at the close of the fourth quarter, we have seen continued velocity and activity similar to pre-COVID levels. For our team, 2020 was a record-breaking year that eclipsed the achievements we set in 2019, and we sold 15 percent more single-tenant properties in 2020 than multi-tenant properties. Despite the effects of COVID, record-breaking cap rates were still being achieved in 2020, as buyer demand outpaced the supply of best-in-class retail investments. We expect to continue seeing premium pricing for properties that represent a flight to quality in tenancy, length of lease and location, particularly in the $2 million to $8 million range in 2021.
One STNL asset type we anticipate seeing an increase in both supply and demand is net lease express car washes. The reason for this uptick is that net lease express car washes have proven to be pandemic- and recession-resistant, and in most cases, express car wash operators are experiencing an increase in customers due to their convenient locations, speed of service, and lower cost with monthly membership plans. Also, the express “do it yourself” model aligns directly with COVID guidelines and social distancing since car wash workers are not entering a person’s car to clean it. Investors have also taken advantage that express car washes offer a larger tax deduction through depreciation than virtually any other net lease asset. In the last 24 months, Hanley Investment Group has sold 40 single-tenant car wash properties across the country valued at $165 million.