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Limited supply of quality net lease investments available, plus 12 recent retail property purchases

July 8, 2021

A pile of single-tenant net lease retail properties with short-term leases and less-desirable tenant credit have been put on the market, pushing cap rates for the sector up by 11 basis points from the first to the second quarter, according to The Boulder Group’s Q2 2021 Net Lease Market Report. The 6.02% cap rate for the second quarter follows a historically low rate in the first quarter. By comparison, industrial cap rates increased by 18 basis points and office cap rates remained unchanged. “Following a quarter of historic pricing for the net lease sector, owners of lower-quality assets brought properties to the market in [an] attempt to take advantage of current cap rate levels,” the report said. “The increased concentration of lower-quality assets was the primary contributing factor for the rise in cap rates.”

Despite a 3% decrease in supply of net lease assets, these “lower-quality” assets made up a larger concentration of the market in the second quarter, according to the report. The supply of assets with long-term leases to credit tenants remains limited. Only 22% of the properties available for sale had more than 15 years remaining on their lease terms.

Investors are fighting over a handful of the assets perceived to be high quality — including McDonald’s, 7-Eleven and CVS stores — driving cap rates on those properties down and pushing some investors toward categories like daycare and to tenants like Rite Aid, according to The Boulder Group. And, as the country continues to reopen, investors will monitor those assets classes that were not trading during the pandemic, such as fitness and theaters according to The Boulder Group.

12 recent retail property transactions

Mack-Cali sold the 133,276-square-foot Wegmans Retail Center in Hanover, New Jersey, for $46 million. JLL Capital Markets marketed the property on behalf of the owner and represented the buyer. The center is net leased to Wegmans and Panera. The sale also included two recently developed restaurants along Route 10 that are leased to The Capital Grille and Seasons 52.

Wegmans Retail Center

Cottage Plaza — an 84,455-square-foot, Stop & Shop grocery-anchored property in Pawtucket, Rhode Island — sold for $21.7 million, or $256 per square foot. Marcus & Millichap Institutional Property Advisors represented the seller. It also procured the buyer, AAG Management president Arnold Gumowitz. Inline tenants include Advance Auto Parts, Pawtucket Wine & Spirits and Sally Beauty, as well as outparcel tenants Stop & Shop Gas, Wendy’s, and Dunkin Donuts. The center is pictured at top.

Baltimore-based Continental Realty Corp. acquired the 144,241-square-foot South Plains Crossing in Lubbock, Texas, for $18.25 million in an off-market transaction. Continental bought the property for its Continental Realty Fund V, a $210.8 million private equity fund for value-add retail and multifamily in the Mid-Atlantic and Southeast. The company has purchased $188 million of retail property for the fund since the beginning of 2020. In addition to a 70,000-square-foot Hobby Lobby, tenants include Spec’s — a 33,060-square-foot store that sells wine, beer, spirits and gourmet food items — and Visionmart, a 10,000-square-foot store that stocks eyeglasses and offers optical exams. The sellers were DRA Advisors and RCG Ventures.

Cape Girardeau, Missouri’s 68-acre, 507,550-square-foot West Park Mall traded for $9.8 million in an online auction. Special servicer LNR Partners handled the sale. The JCPenney was not included. CBL will continue to manage the center, which also has a vacant Macy’s.

Coastal Equities bought the 61,593-square-foot, Food Lion-anchored Randleman Plaza in Greensboro, North Carolina, from a Woodbine, Maryland-based LLC for $5.4 million. Tenants include Boost Mobile, Little Caesars and Subway.

An 8,299-square-foot Staten Island, New York, property, occupied by Harley-Davidson on a triple-net ground lease for another 18 years, traded for $5.6 million. The Boulder Group represented the buyer, a New York-based developer, as well as the New York-based seller.

CTO Realty Growth bought a 74,759-square-foot center at 2418 and 2424 W. Main St. in Durant, Oklahoma, from a Sapulpa, Oklahoma, investor for $3.9 million at a 7.49% cap rate. The property was built in 1985 and had undergone recent improvements. It’s triple-net leased to Orscheln Farm & Home and to Big Lots, and a Big Lots distribution center is nearby. Neighboring tenants include Walmart, Harbor Freight and Aaron’s.

2418 and 2424 W. Main St. in Durant, Oklahoma

A church is buying a 4,000-square-foot former tai chi center in Portland, Oregon, to use as a bookstore and learning center. First Church of Christ, Scientist paid the Taoist Tai Chi Society of the United States of America $2.4 million for the property. It previously had been a warehouse, and it has a full commercial kitchen. Cushman & Wakefield represented the buyer, and Norris & Stevens represented the seller.

American Realty Advisors sold the 113,139-square-foot St. John’s Town Center North in Jacksonville, Florida, to Core Investment Management. Publix and Total Wine & More anchor the property. Aveda, Five Guys, Hotworx fitness center, Pearle Vision, Sport Clips and WW are also tenants. Tropea Dental Care, 145°F Seafood Boil and a national bank occupy the three outparcels. JLL Capital Markets represented the seller.

St. John’s Town Center North

A Dubuque, Iowa-based investor sold two Dollar General stores totaling 18,000 square feet to two buyers. The Lubbock, Texas, store sold at a 6.6% cap rate, according to Stan Johnson Co, which represented the seller. The Levelland, Texas, store traded at a 6.42% cap rate. The properties were built in 2005 and 2006 and feature double-net lease structures. At the time of sale, each had approximately seven years remaining on their lease terms.

Fidelis acquired the 365,559-square-foot Winwood Town Center in Odessa, Texas. H-E-B and Target anchor the center. Additional tenants include Ross Dress for Less, DD’s Discounts, Office Depot and Michaels. The asset also includes ground leases to BBVA, Chick-fil-A, Jack in the Box and Taco Bell. JLL Capital Markets orchestrated the off-market deal on behalf of the seller, Brixmor. JLL also arranged a 10-year acquisition loan with Frost Bank on behalf of the buyer.

Winwood Town Center

Riverview Town Centre LLC bought the 46,002-square-foot Riverview Town Centre in Riverview, Florida. Tenants include Amscot, Dickey’s Barbecue Pit, Mattress Firm, Rent King and Sport Clips. Plaza Advisors represented the seller, and Equity Partners Real Estate represented the buyer.

By Brannon Boswell

Executive Editor, Commerce + Communities Today

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