LOS ANGELES—A limited product supply is among the top challengesin the net lease market, but for portfoliomanagers, a limited supply has some benefits, according toMark Selman, SVP of asset management atAmerican Realty Capital Properties. Selman isspeaking on the asset and portfolio management panel at theNet Lease Westconference tomorrow in Downtown Los Angeles.

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“The limited supply in some ways is an advantage to us becauseit gives us an opportunity to recycle our portfolio,” Selman tellsGlobeSt.com. “A portfolio is sort of a living, breathing item, andbecause industries and geographies change, we have to go throughand rebalance our portfolio to make sure that industry metrics arestrong, to help with the equity raise and to deal withunanticipated challenges, like changes in industries, changes intenant credit, changes in tenant format and so on.”

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The limited supply is being driven by demand from net-leaseREITs, according to Selman, although some experts explain thatREITs have been priced out of the market due to decreasing cap rates.Still, Selman explains, there are more net-lease REITs today thanthere were two years ago, and those REITs need to maintain aminimum size to remain competitive in terms of cost of capital.“Competition is at an all-time high for new industry assets, andpeople want larger transactions,” Selman adds.

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In property management, however, Selman faces a different set ofchallenges, which include dealing with tenant and industryfluctuations. “The challenge that we are dealing with is that thetenants are reevaluating the number of spaces they have as well asthe space configuration,” he says. “You have to keep going tosurvive.” As a result, Selman is constantly rebalancing theportfolio, determining the property types that have prime locationand configuration, the property types that can be easily refiguredfor new tenants and the properties that will take more work duringtenant turnover. “Because there is a lot of demand for product,people will actually work in a broader category of real estate thanthey might have before. Everyone wants a 20-year, triple net leasefor 3% annual cost,” Selman adds. “Once they see what the demandfor that is and start looking at their return requirements, theystart to refer back to their credit scale and lease-termscale.”

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Kelsi Maree Borland

Kelsi Maree Borland is a freelance journalist and magazine writer based in Los Angeles, California. For more than 5 years, she has extensively reported on the commercial real estate industry, covering major deals across all commercial asset classes, investment strategy and capital markets trends, market commentary, economic trends and new technologies disrupting and revolutionizing the industry. Her work appears daily on GlobeSt.com and regularly in Real Estate Forum Magazine. As a magazine writer, she covers lifestyle and travel trends. Her work has appeared in Angeleno, Los Angeles Magazine, Travel and Leisure and more.