"Other companies have to do it the way we do it, or it doesn't work," Tax Strategies Group chief executive officer Rob Hannah tells GlobeSt.com. Competitors will either restructure deals, he adds or exit the business.
It is a niche that has grown with a declining stock market sparking renewed interest in almost all forms of real estate. By selling off fractional interests in a property, it allows investors to buy into $25 million to $50 million commercial real estate deals for $500,000 or so, Hannah recently told a Chicago Association of Realtors commercial investment forum.
"It takes us about 90 days to sell out a $30-million, $40-million property," Hannah says. "It doesn't take very long. And this is taking place on a global scale."
Tax Strategies Group deals range up to the 500,000-sf Honeywell headquarters in northwest suburban Arlington Heights, IL, acquired for $44.653 million, Hannah says. He adds the company is currently involved in an acquisition of a 370,000-sf shopping center in Cedar Hill, TX as well as a new industrial facility in Flint, MI. "We always like to have a mix of different products," Hannah says.
Tax Strategies Group's deals involve a "conservative" amount of leverage, Hannah says, with the 1031 investors acquiring their fractional interests subject to their pro-rata share of non-recourse, securitized loans. The goal is cash-on-cash returns of 8% to 10%, Hannah says, with a focus on long-term, escalating leases involving national credit tenants.
The tenant's credit is not enough, Hannah says, emphasizing the escalation provision is critical. "I ask my clients if they would buy Microsoft stock at $20 per share if the price of the stock won't go up," Hannah explains. "The answer is usually 'no'."
Also, Hannah's company doesn't pay retail. "We're dealing in an echelon of real estate were replacement cost is critical," he says.
Although triple-net leased Walgreens stores are hot properties for investors, he notes the stand-alone buildings are selling north of $300 per sf, yet cost about $80 per sf to build.
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