The building acquisitions were a mixture of selected “essential” retail goods and services offering long term corporately guaranteed “net” lease rents to the investors. The portfolios included new construction Dollar General Stores and Harbor Freight Tools discount tool and equipment retailer, and existing national car care centers Tire Choice (Monroe) and Mavis Discount Tires. The properties are located in North Carolina, Georgia, Mississippi, Alabama and Florida.
There are eleven buildings that sold totaling 118,848 square feet at an average price of $200 per square foot. The cap rates for the eleven properties averaged 6.70%. Nationally, cap rates in the single tenant net lease sector reached historic lows on the fourth quarter of 2020 across all three main subsectors (retail, office, industrial) compressing to 6.75%. Retail net lease cap rates compressed to 6%. Investor demand for the net lease sector should remain active in 2021 especially for retail tenants in essential businesses due to low interest rates and flight to quality.
The purchasers, Stephen M. Greene, LLC’s and Best Freezer Holdings, LLC acquired the portfolios with seven and four properties respectively. Both investors had sold industrial cold storage facilities valued at $40 million dollars brokered by ComReal. The Sellers utilized the IRS Code 1031 Exchange provisions to acquire the portfolios deferring capital gains taxes from the sale proceeds by reinvesting in qualifying real estate properties.
“It was challenging to meet the 1031 Exchange timing requirements due to demand for ‘essential’ retail net leases, multiple offers and due diligence for the properties in different markets during the effects of Covid-19”, states John Lonardo, CCIM.