Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
Issue link: http://cire.epubxp.com/i/536709
38 July | August | 2015 Commercial Investment Real Estate Miller: T e dominant tenants that we have worked with include Dollar Gen- eral, Family Dollar, Applebee's, Arby's, Wendy's, Hardee's, Hooters, Kaufman Tire, and Fresenius. Most buyers are looking for longer lease terms of 10-plus years. T ey are willing to buy at a lower cap rate to get the long-term lease. QSR buyers, in particular, also see the long- term impact of periodic rent bumps to improve their yield over time, justifying the lower cap rate. Renz: We are seeing dollar stores, drugstores, automotive retail, and fast food, with general lease length of 10 to 15 years with leases that are f at or have minor increases every f ve to 10 years. CIRE: What are the challenges facing buyers and sellers? Renshaw: Buyers can't f nd product. Miller: Sellers are saying "Find me a good property to buy and then I will sell" — sort of the chicken and the egg prob- lem. As a result, brokers are bringing more of -market properties to buyers. Also, out-of-state buyers who want to leverage are having a harder time get- ting f nancing. Most of the larger banks require the buyer to reside in the same state as the property. Further, most commercial lenders will of er 15- or 20-year f nancing, which does not of er enough cash f ow incentive for the buyer, given the low cap rates. T us, cash is king if purchasing out of state. Wimberly: For sellers, one challenge is that when buyers accept their aggressive pricing strategy, the buyers are carefully scrutinizing the assets during the due diligence period. If they f nd any deferred maintenance issues, they are going back to the sellers and seeking a price reduction. Renz: For developers and merchant builders, the issue is f nding additional opportunities to create STNL properties. CIRE: How will rising interest rates later this year affect STNL transactions? Renshaw: It won't. Miller: Rising interest rates will cause cap rates to increase to main- tain the spread to ensure cash f ow viability. I believe the increase in cap rates will lag behind interest rate increases. However, both will occur very gradually. Renz: STNL cap rates are not likely to rise as much as other invest- ment real estate — their popularity helps to keep the cap rates lower. Wimberly: As the cost of capital increases, the available yields on the assets being of ered today decrease. T is will push many buyers out of the market at today's prices. It is hard for me to believe that cap rates won't rise. T e question is exactly when that will happen. CIRE: How has your CCIM education helped you in this specialty? Miller: In the STNL world, understanding how to discuss and express long-term values is especially important in the current envi- ronment. T ese tools, as well as the various services such as STDB, make the designation very valuable. Renz: CCIM education has helped me take a more thorough look at investment instead of just considering leasing income. And I have nationwide connections I can reach out to get location specif c info without having on-site access and market area access. Renshaw: Many of the brokers who work for me are now pursu- ing their CCIM pin, and the education helps all of us underwrite the credits, the cash f ows, and other return metrics, so we can more accurately price deals for sellers and buyers alike. T e CCIM pin has helped me execute deals at a much higher level for clients. Wimberly: T e f nancial analysis techniques and tools provided by my CCIM education are instrumental. I use the spreadsheets and f nan- cial calculators almost every single day. I believe in the program so much that I have a tuition reimbursement program for those on my team. 5 6 7 8 9 1Q12 1Q13 1Q14 1Q15 Discount stores Auto stores Drugstores Restaurants Convenience stores Banks STNL Product Source: NNN Advisors National Average Cap Rates by Product Luke Sharrett/Getty Images