Not a lot of encouraging retail real estate news happened during the recession. Several large chains, such as Linens 'N Things and Circuit City, among others, closed their doors, leaving several retail landlords scrambling to fill vacancies.

But one retail sector stood apart, for the most part, while things collapsed: net lease assets. It made sense. The tenants that are generally in net lease properties are necessity-based outfits, such as fast food (McDonald's) and drug stores (Walgreens). People watching their budgets started buying more fast food, and of course, trips to the pharmacy are unavoidable.

Well, even with an improving economy, this property type is still popular. Investors like the high returns they bring and that they are low maintenance endeavors that because the tenant usually maintains the property, and one has to simply just wait for a check in most cases. Not many firms we've spoken with know more about retail net lease than Stan Johnson Co. (RECon booth S241). We spoke with Sam Alison, the firm's regional director, about this exciting sector.

GlobeSt.com: What makes net lease retail properties on the West Coast attractive to investors?

Sam Alison: Retail real estate has been one of the most attractive investments available to private and institutional buyers over the past 20 years. This statement applies when compared to all potential investment options including stocks, bonds, precious metals, commodities, everything imaginable. This is because of asset transparency, reliably consistent cash flow, rising rents and compressing cap rates. West Coast net-lease assets are particularly attractive because they are abundant and affordable, and provide significant increases in underlying value over time.

GlobeSt.com: Why is the West Coast a key market for Stan Johnson Company?

Alison: The West region is the largest US submarket for net lease sales. In 2014, approximately 25% of total US net lease sales were completed in six western states: California, Arizona, Nevada, Utah, Oregon and Washington. We are finding that West Coast-based developers, owners and investors appreciate the high level of service, net lease product and market expertise for which Stan Johnson Company is known.

GlobeSt.com: Where and with what type of retail properties on the West Coast do you see value for investors looking to buy?

Alison: Value is in the eye of the beholder. Many investors today place a high value on steady, reliable cash flow and appreciating asset values, which are the hallmarks of West Coast net-lease properties. Because of surging demand from expanding retailers, sites with short-term leases offer value for investors looking for higher yields through re-tenanting, or raising rents upon lease expiration. Some investors are buying older properties, buying out the lease from underperforming retailers, and re-leasing to higher volume operators, particularly in the fast-food and casual dining sectors.

GlobeSt.com: What factors are key to being selected as the buyer and closing on a deal?

Alison: Serious buyers have a good idea of their risk-reward tolerance before submitting an offer, then make sound offers and respond quickly to counter terms. Typically, there are multiple buyers for a property, so sellers are requiring shorter due diligence periods. Buyers need to be prepared to move forward as soon as the deal is signed up. Part-time investors and even long-time buyers busy with other pursuits will benefit from hiring an experienced broker to find suitable properties and represent their interest with sellers.

GlobeSt.com: How do you expect the net lease retail market on the West Coast to change over the next 12 to 24 months?

Alison: I think the West Coast net lease market will remain robust for several years as developers roll out newly built restaurants, pharmacies, banks and other single-tenant retail stores. Debt will remain available at attractive rates, and people will continue to receive steady cash flow through real estate investments. Next year is an election year and no politician or policymaker wants to rock the economic boat with so much at stake. Remember that stocks and bonds react to rising interest rates with much greater volatility than does real estate.

Instant Insights /

Who Needs Stocks and Bonds When There's Net Lease?

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