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RICHMOND, VA-Louis Rogers knows net lease. As president and board member of Triple Net Properties, he oversaw what became one of the nation’s largest TIC sponsors and syndicated in excess of $4 billion of real estate in over 100 offerings, including TICs.
Then the economic world fell apart, and we know what happened to commercial real estate. TICs, in particular, at their worst, were often compared to other dubious investments (think Ponzi schemes and Three-Card Monte).
Well, the real estate market in general, and the net lease market in particular, is back, or at least on its way. And so is Louis Rogers.
Locally based Rogers has launched a national platform, Capital Square Realty Advisors LLC, to catch the rising wave of net lease and TIC opportunities for high net-worth investors. In fact, as GlobeSt.com reporter Brian Rogal reported last week, the shop has already made its inaugural purchase. Riverwood Corporate Center is the institutional-quality, class A headquarters for ProHealth Care Inc. in a Milwaukee suburb. The property is 100% leased to ProHealth, a regional healthcare provider, on a triple-net basis through July 31, 2022. The sale was structured on a Delaware Statutory Trust basis.
“When you hear net-lease, you generally think of Walgreens or Rite-Aids,” he tells GlobeSt.com in an exclusive interview. “But the net-lease business has exploded.” He quotes a recent Jones Lang LaSalle study that pointed out that “yield-seeking investors have been driven into alternatives like net lease.
“Our vision is a net-lease property that’s a corporate facility, a mission-critical asset that an investment-grade tenant must have to conduct its business,” Rogers says. Riverwood, with its long-term and recession-resistant tenant, was just such a play. “The better the asset, the easier the financing.”
Today, he says, net-lease investments are even more beneficial given the capital-gains hit investors are feeling. “Values are coming back,” he says. “High net-worth investors are beginning to sell again on terms that are satisfactory and they’re looking for quality replacement properties for a 1031Exchange.”
One of the reasons he focuses on credit tenant-leased properties is because “financing is much more available. Multifamily has the most advantageous financing through the agencies. Fannie will finance a DST structure. Beyond that you have to deal with CMBS, which is also coming back to DSTs.” So are banks and life companies, he says. “The terms are excellent but the number of lenders is a fraction of what it used to be.”
And that’s where a firm like Capital Square comes in. “A sponsor, like us,” he says, “finds the asset , negotiates the purchase and sale, conducts the due diligence, negotiates the financing, closes the deal and serves the property up to the investor ready to go with financing in place.”
The TIC market, considering the drubbing it took (and the drubbing it gave, for that matter) has had more problems than merely suffering the effects of a lousy economy. Rogers says that the modern reality is changing old perceptions, thanks to the Delaware Structure.
“The DST solves a lot of the problems with the TIC structure,” he says, in that it “essentially forces a property that’s much more passive. If we have a 10-year lease with an investment-grade tenant and that building doesn’t need any repairs, we need less reserve.
“These buildings are safe, stable and predictable,” he adds. “They may not generate the highest yield possible, but they’ll perform as anticipated.” And that, he says, is just what a high net-worth investor is looking for.