SAN DIEGO—In an age where tenants come and go, certain factors now matter more to investors than brand-name recognition, Stan Johnson Co. broker Mike Philbin tells GlobeSt.com. Philbin, along with the firm's Sam Alison and Amar Goli, recently represented seller Steve Grady of La Jolla-based the Focus Group in the sale of a newly build fast-food restaurant, Popeye's, in National City, CA, to a San Diego-based private buyer at a cap rate of 4.25%. We spoke exclusively with Philbin about why the transaction was particularly significant and trends he is noticing in the 1031-exchange market.
GlobeSt.com: What's significant for you about the Popeye's transaction?
Philbin: The cap rate paid for the property was 4.25%, which was aggressive considering that the franchisee was just starting to expand in the area. We expected the listing would be attractive to buyers because of the lack of available properties in San Diego, but we were blown away by the amount of activity and the number of offers received at or near the asking price. Achieving this low of a cap rate for a smaller operator indicates the high demand for new product.
GlobeSt.com: What trends are you noticing in the net-lease 1031-exchange market?
Philbin: 1031-exchange investors are focusing more on remaining lease term and location and less on name recognition and credit. The expectation is that with rents rising, quality real estate will provide protection in case tenants turn over.
GlobeSt.com: Are you seeing any new patterns in this market with regard to property type, lenders or geography?
Philbin: California-based 1031-exchange buyers are spreading their proceeds across the US. Buyers are trying to boost after-tax yield by investing in income-tax-free states like Nevada and Washington. But most buyers want to own properties close to home, so California properties continue to achieve record-setting prices.
GlobeSt.com: What else should our readers know about net-lease 1031 exchanges?
Philbin: If you are looking to invest in California real estate, do the work up front before the down-leg sells so that you can move quickly after locating quality properties that fit your needs. Move aggressively to make offers, and hire a good broker to assist in finding the right property and completing the acquisition.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
