IRVINE, CA-Demand for top-tier, single-tenant retail properties is on the rise moving into 2013 as supply of these assets dwindles, according to Rick Chichester, president and COO of retail-specialized investment-sales and advisory firm Faris Lee Investments here. Chichester tells GlobeSt.com that cap rates are compressing almost daily for these properties in strong locations with tenants carrying 15 years or more on their leases.
In 2012, “well-located single-tenant properties with credit tenants proved to be in highest demand,” said Chichester in a prepared statement. “However, the supply of top-tier single-tenant properties remains low, which has driven up values as quality assets are moving quickly or being sold off-market. Demand for this product type will continue its upward trend this year, with closing cap rates compressing even more as asking prices or above-asking prices are secured and bidding wars are frequent occurrences.”
Chichester tells GlobeSt.com that the first two months of the year have proven out the fact that either cap rates are continuing to compress or sale prices will rise into 2013. “That causes people to look at alternative properties and different brands in different locations to produce a higher yield. Top-tier brands, markets and assets are so much in demand that people are looking at alternative brands in secondary and tertiary markets.”
Lots of capital looking for a place to get a yield is also causing a scarcity of available properties, Chichester adds. “And real estate has a fair risk profile relative to a lot of other investment choices.”
Faris Lee’s focus in 2013 is not only to continue on its success over the last 17 years—the firm had more than $565 million in total investment-sales volume during 2012, and many of the transactions broke sales records for lowest cap rate and highest price-per-square-foot for a property—but also to expand its clients’ activities in the markets where they are currently active and to identify new clients. The company also is looking organically to add another seven to 10 brokers this year, most of which will join the Irvine office. This would represent a 20% to 30% growth, which is significant for the firm given its size.
“We have to maintain our culture, which is completely and totally collaborative,” says Chichester. “There’s no private information—everything is share, and everyone is involved in every deal. Everybody is expected to contribute to everybody else’s success. As we add people, the Holy Grail for us is holding onto that culture.”
Markets the firm is looking to expand into include Northern California, Colorado, Texas, Chicago and the Southeast—probably Florida, says Chichester—with a focus on Northern California and Chicago. “We’re clearly a very specialized, very disciplined retail investment boutique. The product is the retail asset. Our entire focus is around quality—we’re not a quantity-based brokerage company, and we’re not going to get really big in terms of number of brokers.”
As GlobeSt.com reported exclusively earlier this month Faris Lee completed the sales of six Walgreens-occupied properties in less than 60 days. Five of the transactions closed off-market, while the sixth was a regular market sale. The five properties purchased in all-cash, off-market transactions were sold by a private owner from Denver to an East Coast-based private buyer and totaled nearly $26.5 million.
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