Northmarq’s Christian Vaughan, vice president, completed the sale of a seven-property healthcare portfolio occupied by Riccobene Associates Family Dentistry, a dental service organization with approximately 60 locations in the Mid-Atlantic. The properties are located throughout Virginia and total 20,435 sq. ft. Vaughan represented the 1031 exchange buyer, an individual investor based in Wisconsin, who acquired the asset for approximately $5.33 million. The sellers were dentists employed by the practice.“We were tasked with finding an outstanding replacement investment opportunity for our client who was entering a 1031 exchange,” said Vaughan. “These dental clinics had a strong relationship in the communities they had been in for decades. The practices were recently acquired by a larger dental service organization, which enhanced the credit profile. Recent lease extensions also demonstrated their commitment to these properties in the long term. It’s always a joy for us to be able to provide a fantastic solution to a 1031 exchange position for our clients.”Medical office properties continue to offer tremendous opportunities to net lease investors, according to Northmarq’s Single-Tenant Office MarketSnapshot, and dentist offices specifically are in high demand. Riccobene Associates Family Dentistry is continuing to expand rapidly and provide dentistry services including cosmetic, family, orthodontic, surgical, pediatric, periodontics and prosthodontics.The portfolio includes seven freestanding buildings ranging from 1,343 to 4,569 sq. ft. All properties operate on double net leases.

Riley Sharman, vice president in Northmarq’s Houston office, arranged the $1.65 million 1031 exchange for a freestanding single-tenant retail space fully leased to Mission BBQ. The property features a corporate guaranty from Mission BBQ, the growing privately-owned fast-casual restaurant chain. Sharman represented the 1031 exchange buyer, a Florida-based private investor. The seller was a New York-based developer.“The Florida-based buyer capitalized on a strip center sale in Deer Park, TX (Houston MSA) in June and then exercised a 1031 tax-deferred exchange into a newly constructed, 10-Year, NNN ground lease with Mission Barbecue (over 100 locations nationwide),” said Sharman. “He was attracted to the irreplaceable location being an outparcel to a major mall on the busiest thoroughfare in Bowling Green, KY and envisions a long-term hold.”The freestanding restaurant is located at 2631 Scottsville Rd. in an out-lot of the Greenwood Mall with tenants such as Dillard’s and Belk. The 3,375 sq. ft. property is situated with frontage along the main thoroughfare between Greenwood Mall and downtown Bowling Green. Located in a fast-growing market, the single-tenant retail property benefits from Greenwood Mall’s 4.1 million annual visitors and approximately 37,600 vehicles per day on Scottsville Rd. The tenant operates on a long-term absolute triple net ground lease.

Originally published by GlobeSt Cap rates in Q1 2023 represented the highest levels since Q3 2020 for both the single-tenant retail and office sectors, according to a new report from The Boulder Group. Decreasing transaction volume for the greater real estate market continues to limit 1031 exchange buyers transitioning into net lease properties, it said, as cap rates in the single tenant net lease sector increased for the fourth consecutive quarter within all three sectors in Q1 2023. New construction properties with recession-proof tenants including 7-Eleven and McDonald’s represent some of the lowest cap rates in the sector. “However, these tenants are not immune to upward cap rate pressure,” according to the report. “In Q1 2023, cap rates for new construction 7-Eleven and McDonald’s properties increased by 35 and 15 basis points, respectively. Furthermore, the spread between asking and closed cap rate increased for all three asset classes.” The spread rose to 30 basis points for retail, 40 for office, and 27 for industrial, according to the report. “Investors will continue to follow the Federal Reserve’s monetary policy,” The Boulder Group writes. “Investors largely believe there will be an end to the larger rate increases, of 50 basis points or more, in the near term.” Transactions will be driven by low leverage or all cash 1031 buyers for the highest quality product, The Boulder Group said. “However, given the overall uncertainty in the broader real estate market, the depth of the 1031 buyer pool will be limited when compared to historical standards.” Lower-Credit Assets ‘Back Where They Should Be’ Mike Philbin, Northmarq senior vice president, tells GlobeSt.com that “we are closely approaching the one-year mark of when we started to see the peak of the net lease investment market fizzle away. “Due to the repeated interest rates hikes, this was inevitable. However, not all net assets had as drastic of CAP rate shifts. The higher-credit, investment-grade tenants have had a maximum of 50 bps upward movement in this time. “The lower credit, smaller franchisee, in tertiary market tenants have seen closer to 150-200 bps. We did have a very frothy net lease investment market moving into Spring 2022. But relatively speaking, the lower credit assets are back where they should be and the investment grade net lease assets are back to the 2018-2019 range, which was a strong market.” Price Maximization Especially Difficult for Larger Transactions Alex Sharrin, senior managing director, JLL, tells GlobeSt.com that investment momentum persists for performing retail that can be acquired with positive leverage. “The net lease market sits at the crux of real estate and credit, but intrinsic fundamentals are trumping credit amidst volatility,” he said. “Private capital continues to lead the bidder pool for NNN assets across the country and is often winning deals due to the unleveraged nature of the capital/underwriting. “Capitulation has been faster than expected for liquidity and re-investment.” Sharrin said price maximization has been especially difficult for larger transactions (i.e. $75MM+). “Instead of making comparisons to early 2022, a more realistic pricing benchmark is 2018/2019 levels or, pre-pandemic and pre-stimulus,” he said. Transaction Volume Will Soon ‘Level Off’ Ryan Butler, managing director and senior vice president, Northmarq, tells GlobeSt.com that investors across all commercial real estate asset classes have been paying close attention to the responsive actions of the Federal Reserve and US Treasury as they work to address the ongoing regional banking crisis and continue the fight to tame record-high inflation. “As a result of the swift actions taken by both bodies, we are starting to experience a broad expansion in capitalization rates across the Net Lease sector,” Butler said. “However, it is important to note that this cap rate expansion cannot be painted with a broad-brush stroke. Investors in our space are still seeking well-positioned industrial and retail assets leased to ‘recession-proof’ tenants and, as a result, still transacting. “We anticipate a leveling off in the downward trend in transaction volume through the end of the year as investors make sense of this changing market. Realizing that the net lease asset class will continue to be a safe and stable investment vehicle within the real estate sector.” Bid-Ask Gap Widening Eli Randel, COO, CREXi, tells GlobeSt.com that cap rates on closed net lease assets have risen almost 5% YoY with transaction velocity slowing as buyer demand has cooled because of macro-market conditions. “The segment a year ago was at parity between asking and closed prices whereas now sales are transacting below asking prices illustrating a widening of the bid-ask gap,” Randel said. With increases in interest rates, both costs of capital have increased, and similar alternative vehicles are now generating attractive yields (for instance a liquid “risk-free” savings account at Marcus has a 3.75% interest rate), Randel pointed out. “Yet, net-lease real estate still has many benefits to passive investors and remains historically active and strong. Net lease continues to attract 1031 buyers and real estate investors looking for good yields with future upside and often buying in cash. “While slightly less active, higher-yielding, and with more discriminatory underwriting of terms (largely term-length and credit), net lease remains an important category and a great investment product for many in today’s environment.” Stale Assets on the Market, Decreasing Inventories Geoffrey West, senior vice president, MDL Group/CORFAC International, tells GlobeSt.com that amid the historic pace of interest rate increases experienced over the past year, single tenant net lease sellers have been reticent to quickly meet the increased cap rate market expectations resulting in decreased transaction volumes, stale assets on market, and decreasing inventories of available product. West said specifically in the California, Arizona, and Nevada markets, multiple surveys of available fast-food STNL assets (excluding ground leases) conducted over the past year in conjunction with maintaining market positioning of existing listings indicate an overall increase in average asking cap rates from April 2022 to April 2023 from 4.1% to 4.7% and a significant decrease in the quantity and quality composition of the available assets. And within that survey, secondary and tertiary market locations in those states appear to be adjusting to a higher cap rate environment more quickly while primary and core market locations lag as they seek to maintain historical premium cap rate levels. “The recent restabilization of the US 10-year treasury rates around the 350bps level appear to have put reduced upward pressure on asking cap rates as surveys conducted in February 2023 and April 2023 only reflected a 10bps increase in asking cap rate,” West said. “While prospective buyers with 1031 Exchange motivations cannot acquire treasury note assets and those don’t enjoy the benefits and burdens of real estate ownership, the yields being offered in those financial instruments, especially short-term yields, are often superior to core location yields being sought by sellers.” West added that, as such, investors without 1031 Exchange motivations and flexibility may look to temporarily park monies in these alternative investments and benefit from the premium yields being offered by the inverted yield curve until Seller expectations and the current bid-ask spread tighten and transaction activity levels rebound. © 2022 ALM Global Properties, LLC. All rights reserved.

Originally published by GlobeSt While early education centers may have been overlooked by many high-net worth investors in the past, the pandemic has reinforced just how essential these centers are as they are meeting or even exceeding pre-COVID enrollment. Throughout the pandemic, many centers stayed open for the children of front-line workers. Additionally, early education facilities have proven vital for children to have face-to-face interaction to develop social skills. And ultimately, parents need childcare, making the sector necessary. While the early education space has not been as well-known as some other single-tenant net lease sectors, it has taken off over the last couple of years and has become much more recognized as a secure investment. What Has Changed? Historically, early education assets traded for higher cap rates on average than other single-tenant net lease retail properties like dollar stores, banks, and quick-service restaurants. In addition, most of the investors were institutional groups like publicly traded REITS. In general, high-net worth buyers typically had a harder time understanding the early education business model or didn’t recognize the company vs something like a quick-service restaurant or a pharmacy. Most high-net worth investors are one-time buyers who are in a tax-deferred exchanges and being such tend to stick with businesses they know. It is much easier to feel comfortable with a McDonald’s vs. a KinderCare if you don’t know who KinderCare is, despite KinderCare being one of the largest corporate operators in the early education space with over 1,500 locations. This concept is demonstrated by the spread between single-tenant retail cap rates vs. single-tenant early education cap rates. On average, there was an approximately 120 basis point spread between early education and single-tenant retail. However, that spread drastically dropped to about 87 basis points in 2022 – an all-time, record low. That is clear evidence that many more high-net worth investors are aggressively pursuing the early education space. This robust high-net worth investor demand has been driving down cap rates and making this spread thinner. Early education cap rates were historically low in 2022, at an average of 6.44 percent, which is 71 basis points lower than the previous year average of 7.15 percent (this data includes all credits, lease terms, and locations).   © 2022 ALM Global Properties, LLC. All rights reserved. Surging Demand In 2021 and 2022, more high-net worth investors began looking at all types of properties to fulfill their 1031 exchanges including early education, due to a lack of inventory, and some of the most aggressive cap rates ever experienced in the single-tenant net-leased sector. Over the last two years, we started seeing unprecedented demand for early education assets. We saw cap rates drop below 6 percent, which was previously unheard of in this space, and Spector set multiple cap rate records at this sub-6 percent level. Typically, these deals were in strong locations with long lease terms and strong credit. For example, Spector sold a portfolio of two early education centers for $14 million at a 5.75 cap and had multiple offers. Spector also sold a multi-building property for $10.8 million, also at a 5.75 cap, which also drew multiple bids and closed all cash. Sales Volume Up Transaction volume for the early education sector in 2022 exceeded $681 million, up approximately $54 million over 2021. Both 2021 and 2022 nearly doubled the sales volumes of previous years, again a strong indicator that more buyers are attracted to the space. In 2022, there was a significant amount of investment from the “private client” or “high-net worth” sector, with approximately 89 percent of early education properties sold to this investor type. New listings are also on the rise. The increase in listings can be attributed to growing demand from investors, prompting more landlords to consider a sale, as well as more developers and operators looking to capitalize on the benefits of fully marketing a property. Outlook for 2023 This year unwavering investor demand will continue for early education properties. Buyers remain attracted to the sector’s e-commerce-resistant nature, high-quality real estate, long lease terms, and escalating demand. While the net-leased market has decelerated overall, it is by no means “dead.” While the market was in somewhat of a frenzy over the last couple of years, Spector anticipates strong sales volume again this year. Early education properties will continue to trade hands, as more 1031 buyers consider it a secure option with strong tenants. Like every other product type, however, today’s cap rates for early education assets are a bit of a moving target due to the rapidly changing economic environment and rising interest rates. While we may not be seeing as many deals trade in the sub-6 percent range that was seen in 2022, they remain extremely low relative to where the market was historically. © 2022 ALM Global Properties, LLC. All rights reserved.

Erik Lundberg, associate vice president in Northmarq’s Tulsa office, completed the sale of two brand new, New England style properties leased to Dollar General located at 580 Lake Road in Andover and 1967 Norwich-New London Turnpike in Montville, Connecticut. Lundberg represented the buyer, a private investor located in Farmington, who acquired the assets for a total of $4.855 million. The seller was a developer based in Torrington.   “Despite the challenges of today’s market, we were able to successfully complete two separate 1031 buy needs, placing our client into two new construction Dollar General build to suits, both in prime Connecticut locations,” said Lundberg.  The newly constructed buildings feature upgraded construction including architectural asphalt shingles, Hardie board siding, decorative lighting fixtures, and New England style windowed dormers. Strategically located just off US Highway 6, the Andover property is 15 miles east of downtown Hartford and seven miles from the University of Connecticut and Eastern Connecticut State University, attracting students and residents across the state. Situated in the village of Uncasville, the Montville Dollar General is a short distance from the Mohegan Sun Casino. Additionally, the property is conveniently located across the street from a Stop & Shop and Home Depot-anchored shopping center and neighbors a McDonald’s and CVS Pharmacy. The tenants operate on a long-term absolute triple net lease.  

Northmarq’s New York office has completed the sale of Parkway Village located at 170 Village Commons Drive in St. Augustine, Florida for $24.1 million. The 52,070-square-foot shopping center is anchored by Publix GreenWise Market, a specialty, natural, and organic grocery store. The seller was a developer based in Fort Lauderdale, Florida. Jason Maier, senior vice president at Northmarq, represented the 1031 exchange buyer, a New York-based private investor.   “I am very pleased to have represented and identified this asset on behalf of our client who was in a 1031 exchange. This particular asset stood amongst many other properties we reviewed, and the market in St. Augustine has experienced tremendous growth,” said Maier. “Playing off the success and high sales of the Publix-anchored center across the street, Publix wanted to expand its current operations and higher end food offerings, which its current location could not support. The rest of the supportive tenants gave way to a brilliant and vibrant mix of national credit tenants.”  The shopping center is newly built and is 100 percent occupied by 8 tenants, including Starbucks, Orange Theory Fitness, Supercuts, as well as local service providers and retails. Anchor-tenant GreenWise Market offers products that meet strict requirements such as USDA certified organic, made with at least 70 percent organic ingredients, and made without artificial preservatives, flavors, or color. The Parkway Village GreenWise Market is the twelfth location of the unique, health-conscious store.  Parkway Village is situated in a strong retail trade and residential area, with neighboring tenants such as a full-size Publix, CVS Pharmacy, AutoZone, and McDonalds and a short walk to Mill Creek Academy and Tocoi Creek High School. Located at the intersection of State Road 16 and International Golf Parkway, the property is convenient for residents of St. Johns County and neighbors the Shoppes at Murabella.  “When we looked around at the amount of new residential development, state of the art new schools, and this gorgeous new shopping center, my client and I both agreed this was a must addition to the portfolio,” added Maier. “We got really lucky with our lender, Principal Life, who provided a very competitive debt package in a touch lending environment.” 

Daniel Herrold, senior vice president of Northmarq’s Tulsa office, recently spoke with Wealth Management Magazine in a story focusing on how opportunities for investors looking for off-market acquisitions have opened up as sellers become more concerned about marketing a property that fails to sell. “Off-market deals have always been highly sought after because investors believe that opportunities that haven’t been widely distributed and/or marketed offer more attractive pricing,” he said. Herrold went on to note that that owners willing to sell their assets at a time when values are declining usually have a motivation to sell, such as personal financial need or an upcoming loan maturity, so they are looking for a qualified buyer who can offer speed of execution and transaction certainty. Other topics covered include: Federal Reserve’s impact on off-market deliveries Flexibility of 1031 exchange Remaining Challenges

Riley Sharman, vice president in Northmarq’s Houston office, has completed the sale of an eight-tenant medical and retail strip center located at 827 Magnolia Boulevard in Magnolia, Texas. The 16,700-square-foot building is fully leased to a diverse mix of strong medical and service-oriented tenants. Sharman represented the seller, a local owner. A 1031 exchange buyer based in Dallas-Fort Worth, Texas acquired the asset.   “The dental partners that I represented were able to maximize value by exercising a ‘partial sale-leaseback’ for their practices, and we ultimately provided them the opportunity to capitalize on a sale to an all-cash, buyer exercising a 1031 tax deferred exchange,” said Sharman. “The interest and offer activity were high due to the long-term leases, strong lease guarantors, and extra acreage behind the strip center for future development, to name a few. This transaction demonstrates the increase in investor demand for multi-tenant medical strip centers we’re seeing throughout the Houston MSA and especially in high-growth areas like Magnolia."   The facility was built in 2012 and is situated on 7.66 acres in the city of Magnolia, an outdoor paradise of biking, hiking, golf, and more approximately 45 miles northwest of Houston. Just across the street from the property is a proposed Magnolia Ridge Development which will bring over 200 homes to one of the best public-school districts in Texas. With excellent visibility and multiple access points, Magnolia Health and Wellness Center boasts prime frontage on Magnolia Boulevard, seeing over 14,000 vehicles per day. Tenants include Hillwood Family Dental Group, Simple Traditions Family Health, Hanigan & Johnson Orthodontics, and Endodontics of Houston.  

Northmarq’s Isaiah Harf, managing director, arranged the sale of a built-to-suit property leased to Popeyes located at 320 North Beacon Boulevard in Grand Haven, Michigan. Harf represented the seller and owner based in Illinois. A New York-based private investor acquired the asset for approximately $3.1 million.  “Along Beacon Boulevard, just south of Home Depot in downtown Grand Haven (a wonderful city along the western coastline of Michigan) sits a new construction Popeyes, which we marketed and sold very quickly relative to the current marketplace,” said Harf. “Driven by a purchaser’s 1031 exchange, we were able to strike while the iron kettle was hot and serve up a few spicy chicken sandwiches.”  The property features Popeyes’ newest prototype design and high-quality construction standards. Located in a dense retail corridor, the building has outstanding access and visibility from Highway 104 and 31 and Muskegon, Grand Rapids, and other surrounding areas. Neighboring tenants include The Home Depot, Walgreens, Dollar Tree, Starbucks, and more. The tenant operates on a long-term absolute net lease.  

Matt Lipson, associate vice president in Northmarq’s Oregon office, completed the $2.4 million sale of a freestanding retail property located at 1008 East Main Street in Bradford, Pennsylvania. The property totals 2,860 sq. ft. and is leased to Carrols Restaurant Group, which owns and operates over 1,000 Burger Kings. Lipson represented the seller, a New York-based private investor. The 1031 exchange buyer was an individual located in New York.   “This was a great deal for both buyer and seller. Pre-marketing, the tenant extended its lease 20 years due to its excellent performance at the site. The seller received a great cap rate in a challenging interest rate market and are thrilled with the lifespan of their investment,” said Lipson. “The strength of the tenant, combined with the extraordinary store performance kept the lender engaged, even as interest rates were rising 75 bps each federal reserve session.”  Conveniently located on Bradford’s Main Street, the quick service restaurant benefits from the rapid development in the last 10 years. Neighboring tenants include a brand-new ALDI, Taco Bell, and freestanding Verizon, in addition to a shopping center with tenants such as Tractor Supply Company, Dollar Tree, Anytime Fitness, and Big Lots. The tenant operates on an absolute triple net lease guaranteed by the world’s largest Burger King franchisee.

Northmarq investment sales broker Jeff Enck arranged the $3.33 million sale of Governor’s Walk, a 21,280 sq. ft. multitenant retail property. Within 29 miles of the Atlanta CBD, the property is located at 1980 GA Highway 54 in Peachtree City, Georgia. Governor’s Walk totals 14 units and was 100 percent occupied at the time of contract signing. Northmarq’s Jeff Enck represented the Florida based seller as well as the California-based 1031 exchange buyer in the sale.  “Despite the new interest rate environment, we were able to generate ten offers on the property and close with a 1031 exchange buyer who put a large cash payment down with a small loan. The property had several physical challenges including a 30-year-old metal roof and an aging septic system, so we needed an experienced investor who was willing to do some work,” said Enck. “We are finding that patience is critical in today’s market to maximize price. It often takes weeding through several potential buyers to find the right investor for the right asset.”  Governor’s Walk is situated on a highly visible site off GA Highway 54 and is surrounded by national retailers including Publix, Sprouts, CVS Pharmacy, Starbucks, Dunkin’, Zaxby’s, and a newly constructed Advance Auto Parts. As a principal city of the Atlanta MSA, Peachtree City averages a household income of $139,000 within a three-mile radius of the property.  Tenants at the property include: Car Wash, Donut Shop, Peachtree Pawn, Fresh Smoothie Café, Mary Nails, Curves, Carolina Hemp Co., Southern Crescent Spa, Peachtree Wax Studio, La Plaza R&R Inc., Flooring Store, Men’s World Barber, Rene’e Paige Salon, and M&R Alterations. 

Ryan Roedersheimer, senior vice president in Northmarq’s Cincinnati office, has completed the sale of a multi-tenant retail property in Vincennes Indiana. Kimmell Crossing is a 44,962-square-foot shopping center located at 636-648 Kimmell Road and was fully leased to 10 tenants at the time of sale. Roedersheimer represented the seller, DPPM Management, who acquired the asset in early 2022 from Regency Properties. A local investor purchased the property for approximately $5.2 million in a 1031 exchange.  “This was my first experience at selling a property twice in the same calendar year. We never planned it this way, although the seller knew he acquired the property at a great bargain. The only drawback was the distance from his home state of NC,” said Roedersheimer. “After six months, my teammate, Chris Vitori, presented the off-market details to his client and it was the perfect fit! All sides couldn’t be happier with the outcome!”  Built in 1997, Kimmell Crossing sits in a dense retail corridor at a signalized intersection. The Walmart shadow-anchored strip center includes tenants such as Dollar Tree, Maurices, Sally Beauty Supply, T-Mobile, and CATO. Situated on 4.24 acres, Kimmell Crossing is just off the exit ramp of U.S. Highway 41, providing excellent visibility and access.