SAN DIEGO—The full spectrum of buyers, from private investors to large REITs, is eyeing San Diego’s trophy retail assets and is willing to sacrifice yield going in because they’re banking on long-term appreciation and extremely high barriers to entry, Hanley Investment Group’s EVP Eric Wohl tells Wohl recently represented the seller, a private investment company based in Encinitas, CA, and the buyer, a real estate investment fund based in Canada, in the sale of the Gateway @ Cedros, a rare trophy coastal retail center in Solana Beach, CA, for $6.7 million, representing $837 per square foot.
We spoke exclusively with Wohl about trophy retail assets in this market, who’s buying them and why. Who is investing in trophy retail assets in San Diego?

Wohl: During the marketing process for Gateway @ Cedros in Solana Beach, we received offers from foreign investors, REITs, high-net-worth individuals and local commercial investmentfirms. This really shows the draw of a trophy coastal asset in San Diego since it produces a full spectrum of buyers from a private investor all the way to a large REIT. How is the price per square foot for these assets getting bid up so high?

Wohl: Rents for well-located coastal real estate are swiftly moving up year-over-year, which translates into higher prices per square foot upon a sale. Tenants are willing to pay now more than ever for a building with excellent visibility, parking and access in high-end coastal communities. Gateway @ Cedros experienced multiple qualified cash offers near the asking price right off the bat, speaking to the property’s strong location. What type of yield are investors willing to accept for trophy coastal real estate?

Wohl: We are seeing multi-tenant retail in high-end coastal markets trading anywhere between 4.5% and 5.5% cap rates at the moment, with most buyers purchasing all cash due to the competitive bidding environment. Buyers are willing to take a much lower yield going in on well-located coastal assets because they are banking on the long-term appreciation of the property and know there are extremely high barriers to entry in the trade areas. What else should our readers know about trophy retail assets?

Wohl: These trophy buildings may be trading at high prices per square foot, but for the investors that understand these markets, they know the demand will always be there due to the strong location, good traffic counts and high-end demographics. Coastal retail properties are definitely a niche market, but a market that you can make a lot of money in as long as you understand the fundamentals of the real estate.