When Single-Tenant Retail Is Worth the Risk

The Petco property traded hands at a 4.5% cap rate.

LOS ANGELES—Following the closures of several large retail chains earlier this year, single-tenant retail investments seemed to have mixed reviews. While low-maintenance, they might now be high risk if there is a vacancy. The recent sale of a Petco in Redondo Beach, however, told a different story. The deal traded hands at a record cap rate in the market of 4.5% and commanded high interest from investors. Bill Asher, an EVP at Hanley Investment Group, says that these properties are still great investment opportunities and have strong investor demand. Asher—who represent the seller in the transaction along with president Ed Hanley, while Joe Miller, VP at Voit Real Estate Services represented the buyer—sat down with us for an exclusive interview to discuss the market for single-tenant assets and how buyers can mitigate risk in this changing retail climate.

GlobeSt.com: There have been a lot of mixed opinions about single-tenant retail investments. What is your opinion? Asher: Single-tenant retail investments are still an attractive passive investment with minimal management responsibilities for investors. Their triple-net lease structures typically have the tenant responsible for most expenses, creating a hands-off investment and reliable income stream. Historically, they have been frequently acquired by 1031 exchange buyers that have sold management intensive investments; i.e. multi-family. We have also seen a lot of older investors purchasing these types of assets for estate planning purposes and holding these type of properties long-term to pass down to their heirs. They will continue to be the most sought-after retail investments in today’s market and in the foreseeable future because they offer investors a long-term lease with rental increases within a price range that is often affordable for a majority of buyers.