Though 1031 exchanges of real estate were spared in the legislation's final version, they were eliminated for personal property. Yet there are other changes. Anchin, Block & Anchin's Marc Wieder (right) pointed out that while sellers would previously be able to include FF&E in the asset, they now cannot do so. "You will never get the buyer and seller to agree on what amount of the purchase price is allocated to tangible personal property because buyers want a high basis for depreciation purposes. Sellers want low selling price to minimize the tax on the transaction," he said, as Mark Baran (left), Four Springs Capital, and Steven P. Katkov (center), Cozen O'Conner, looked on.
Attendees and speakers gathered on the eve of RealShare Net Lease 2018 to network, wind down and catch up with colleagues. Hosted by W. P. Carey, the cocktail reception was held at the Pierre Hotel in New York City, followed by panel discussions held the following day at the Park Lane Hotel. With the insights from some of the sector's most influential and knowledgeable executives, the conference covered a variety of issues relevant to today's net lease business.
ALM Real Estate Media's Sule Aygoren kicked off the event with a welcome address that laid the groundwork for the day. Recent tax reforms helped the net lease sector start off the year on a high note, she pointed out. "The bill that ended up coming out of Capitol Hill served to further strengthen the foundations of the sector and brought even more attention to net lease real estate from an investment perspective," she stated. "We saw this in the pickup in activity during the first quarter, and expect to see more of the same for the balance of the year."
Delivering the keynote address to a full house, Sam Chandan, the chair and associate dean at NYU Schack Institute, said most people don't read economic data. Their sense of the economy is based on their job security, career promotions, salary increases and what happens to friends and family members who lose their jobs. For many Americans, it does not feel like the recovery began in 2008, said Chandan, who is also founder of Chandan Economics.
"We can experience growth in the US economy without hiring more people," said Chandan. For the first time in 2001 during and after the recession with the dot-com boom and bust, the economy experienced a "jobless recovery." He pointed out it was the first time there was growth in the US economy, better outcomes in the stock market without consistent job growth. This is critical for our industry because without employment, there is no driver for the demand of commercial real estate.
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When the Boulder Group's Jimmy Goodman, moderator of the "State of the Industry: Smooth Sailing or Murky Waters?" session, asked panelists to name the one thing people don't know about net lease today, the speakers agreed that the quality of the lease is of utmost importance. While the asset itself is an important factor, it's the lease that serves to protect the landlord. The panelists warned against providing leases that do not account for tenant failures in an urgency to get the deal signed.
For Angelo, Gordon & Co.'s Gordon J. Whiting (left), the biggest surprise in the net lease space in recent years has been how aggressively foreign capital is going after real estate investments, paying high prices for less-than-investment-grade assets in secondary locations. Panelists Guy Ponticiello (center), CBRE Corporate Capital Markets, and Calkain's Jonathan W. Hipp (right), concurred that both foreign and institutional players have upped their appetite for net lease, particularly in the industrial sector.
Despite concerns about the market peaking and interest rates rising, W. P. Carey's Gino Sabatini (left) expects a healthy investment climate in 2018 as sellers become more motivated and buyers regain some leverage. The recent tax reforms are also serving to encourage activity, since the new limits on interest deductions—whereas rental expenses are fully deductible—make sale-leasebacks a more attractive financing alternative versus traditional debt.
Speakers on the Capital Markets panel, moderated by Marcus & Millichap's Glen D. Kunofsky (standing) reported seeing increased activity in the net lease financing arena over the past year, and expect it to continue in 2018. The uptick in transaction volume is primarily attributed to sellers recalibrating their pricing expectations in anticipation of rising interest and cap rates. Now is the time to engage in a sale or financing transaction, they advised.
Similar to investors' observations, capital providers are also seeing more aggressive dealmaking in the net lease business. "We're seeing people take risks that suggest we might be on the verge of a little bit of a bubble with respect to certain kinds of transactions," stated Kyle Gore of CGA Capital. Participating on the financing panel were (from left) Mark E. West, HFF; Barclay G. Jones III, iStar; Gore; Thomas J. Zarrilli, CTL Capital; and Ralph Cram, Envoy NNN.
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Opening up the session, "Increasing the Inventory: 2018 Sector Developments," moderator Matt Bear, Bear Real Estate Advisors, stated, "The best real estate is covered up with bad buildings." In other words, developers can be successful with the right product in good markets—such as focusing on quick-service restaurants, value-add assets, exclusive relationships with tenants—shared the panelists, Mark Maughan (left), Sundance Bay; Rob Barse (right), McShane Development, and Ben Hidalgo (not pictured) of Net Lease Development.
The lunch break featured a special session on tends in public and private REITs, featuring senior executives from some of the most active trusts in the industry. John Massocca (standing), Ladenburg Thalmann & Co. moderated the discussion between (seated, from left) Teddy Kaplan, New Mountain Capital; Sean Cutt, Broadstone Net Lease Inc.; Mark J. Olear, Getty Realty; Jason Kessler, ARCTRUST; and Dan Lovitz, VEREIT.
New Mountain Capital's Teddy Kaplan (left) and Sean Cutt, Broadstone Net Lease, noted that increasing interest cap rates could slow down the REIT market in the upcoming year. Still, they pointed out that there are strengths and weaknesses even within specific sectors that require deals to be evaluated on an individual level. Retail, for instance, may be experiencing difficulties, but retail warehousing is experiencing growth. As such, investors must to stay attuned to the changing marketplace at the granular level.
Speakers in a sector-focused panel session agreed with Stan Glantz's statement that "no business is Internet-proof." However, they also acknowledged that certain segments—particularly, healthcare and medical services that occupy retail space—do require a physical presence. Participants in the "Internet-Proof Net Lease Sectors" panel included (from left) Rob Walters, Quattro Development; Guy Leibler, Simone Healthcare Development; Gene Colley, Royal Seal Cos.; and Glantz, Katz Properties.
In response to this trend, some firms are making it a point to build mixed-use developments, so their tenants can feed off of each other's business. As Quattro Development's Rob Walters (left) and Royal Seal's Gene Colley (right) look on, Simone Healthcare's Guy Leibler pointed out that as recently as a decade ago, no one would think of adding hospital healthcare services to a shopping mall, but now a person can leave their doctor's office and visit a restaurant or store all in one trip.
Advertisement
With tax returns due on Tuesday, April 17, real estate investors are carefully reviewing specific provisions of the new tax law. That's one reason the tax-focused panel, "Breathe Easy: The 1031 Update, Post-Tax Reform," was a big hit with attendees. The session, moderated by Mary Cunningham (left), Chicago Deferred Exchange Co., and featuring experts (from left) Jason Salmon, Kay Properties & Investments; Mark Baran, Four Springs Capital; Steven P. Katkov, Cozen O'Conner; and Marc Wieder, Anchin, Block & Anchin, covered the implications of tax reform on net lease—namely, 1031 exchanges.
Though 1031 exchanges of real estate were spared in the legislation's final version, they were eliminated for personal property. Yet there are other changes. Anchin, Block & Anchin's Marc Wieder (right) pointed out that while sellers would previously be able to include FF&E in the asset, they now cannot do so. "You will never get the buyer and seller to agree on what amount of the purchase price is allocated to tangible personal property because buyers want a high basis for depreciation purposes. Sellers want low selling price to minimize the tax on the transaction," he said, as Mark Baran (left), Four Springs Capital, and Steven P. Katkov (center), Cozen O'Conner, looked on.
Attendees and speakers gathered on the eve of RealShare Net Lease 2018 to network, wind down and catch up with colleagues. Hosted by W. P. Carey, the cocktail reception was held at the Pierre Hotel in New York City, followed by panel discussions held the following day at the Park Lane Hotel. With the insights from some of the sector's most influential and knowledgeable executives, the conference covered a variety of issues relevant to today's net lease business.
ALM Real Estate Media's Sule Aygoren kicked off the event with a welcome address that laid the groundwork for the day. Recent tax reforms helped the net lease sector start off the year on a high note, she pointed out. "The bill that ended up coming out of Capitol Hill served to further strengthen the foundations of the sector and brought even more attention to net lease real estate from an investment perspective," she stated. "We saw this in the pickup in activity during the first quarter, and expect to see more of the same for the balance of the year."
Delivering the keynote address to a full house, Sam Chandan, the chair and associate dean at NYU Schack Institute, said most people don't read economic data. Their sense of the economy is based on their job security, career promotions, salary increases and what happens to friends and family members who lose their jobs. For many Americans, it does not feel like the recovery began in 2008, said Chandan, who is also founder of Chandan Economics.
"We can experience growth in the US economy without hiring more people," said Chandan. For the first time in 2001 during and after the recession with the dot-com boom and bust, the economy experienced a "jobless recovery." He pointed out it was the first time there was growth in the US economy, better outcomes in the stock market without consistent job growth. This is critical for our industry because without employment, there is no driver for the demand of commercial real estate.
Advertisement
When the Boulder Group's Jimmy Goodman, moderator of the "State of the Industry: Smooth Sailing or Murky Waters?" session, asked panelists to name the one thing people don't know about net lease today, the speakers agreed that the quality of the lease is of utmost importance. While the asset itself is an important factor, it's the lease that serves to protect the landlord. The panelists warned against providing leases that do not account for tenant failures in an urgency to get the deal signed.
For Angelo, Gordon & Co.'s Gordon J. Whiting (left), the biggest surprise in the net lease space in recent years has been how aggressively foreign capital is going after real estate investments, paying high prices for less-than-investment-grade assets in secondary locations. Panelists Guy Ponticiello (center), CBRE Corporate Capital Markets, and Calkain's Jonathan W. Hipp (right), concurred that both foreign and institutional players have upped their appetite for net lease, particularly in the industrial sector.
Despite concerns about the market peaking and interest rates rising, W. P. Carey's Gino Sabatini (left) expects a healthy investment climate in 2018 as sellers become more motivated and buyers regain some leverage. The recent tax reforms are also serving to encourage activity, since the new limits on interest deductions—whereas rental expenses are fully deductible—make sale-leasebacks a more attractive financing alternative versus traditional debt.
Speakers on the Capital Markets panel, moderated by Marcus & Millichap's Glen D. Kunofsky (standing) reported seeing increased activity in the net lease financing arena over the past year, and expect it to continue in 2018. The uptick in transaction volume is primarily attributed to sellers recalibrating their pricing expectations in anticipation of rising interest and cap rates. Now is the time to engage in a sale or financing transaction, they advised.
Similar to investors' observations, capital providers are also seeing more aggressive dealmaking in the net lease business. "We're seeing people take risks that suggest we might be on the verge of a little bit of a bubble with respect to certain kinds of transactions," stated Kyle Gore of CGA Capital. Participating on the financing panel were (from left) Mark E. West, HFF; Barclay G. Jones III, iStar; Gore; Thomas J. Zarrilli, CTL Capital; and Ralph Cram, Envoy NNN.
Advertisement
Opening up the session, "Increasing the Inventory: 2018 Sector Developments," moderator Matt Bear, Bear Real Estate Advisors, stated, "The best real estate is covered up with bad buildings." In other words, developers can be successful with the right product in good markets—such as focusing on quick-service restaurants, value-add assets, exclusive relationships with tenants—shared the panelists, Mark Maughan (left), Sundance Bay; Rob Barse (right), McShane Development, and Ben Hidalgo (not pictured) of Net Lease Development.
The lunch break featured a special session on tends in public and private REITs, featuring senior executives from some of the most active trusts in the industry. John Massocca (standing), Ladenburg Thalmann & Co. moderated the discussion between (seated, from left) Teddy Kaplan, New Mountain Capital; Sean Cutt, Broadstone Net Lease Inc.; Mark J. Olear, Getty Realty; Jason Kessler, ARCTRUST; and Dan Lovitz, VEREIT.
New Mountain Capital's Teddy Kaplan (left) and Sean Cutt, Broadstone Net Lease, noted that increasing interest cap rates could slow down the REIT market in the upcoming year. Still, they pointed out that there are strengths and weaknesses even within specific sectors that require deals to be evaluated on an individual level. Retail, for instance, may be experiencing difficulties, but retail warehousing is experiencing growth. As such, investors must to stay attuned to the changing marketplace at the granular level.
Speakers in a sector-focused panel session agreed with Stan Glantz's statement that "no business is Internet-proof." However, they also acknowledged that certain segments—particularly, healthcare and medical services that occupy retail space—do require a physical presence. Participants in the "Internet-Proof Net Lease Sectors" panel included (from left) Rob Walters, Quattro Development; Guy Leibler, Simone Healthcare Development; Gene Colley, Royal Seal Cos.; and Glantz, Katz Properties.
In response to this trend, some firms are making it a point to build mixed-use developments, so their tenants can feed off of each other's business. As Quattro Development's Rob Walters (left) and Royal Seal's Gene Colley (right) look on, Simone Healthcare's Guy Leibler pointed out that as recently as a decade ago, no one would think of adding hospital healthcare services to a shopping mall, but now a person can leave their doctor's office and visit a restaurant or store all in one trip.
Advertisement
With tax returns due on Tuesday, April 17, real estate investors are carefully reviewing specific provisions of the new tax law. That's one reason the tax-focused panel, "Breathe Easy: The 1031 Update, Post-Tax Reform," was a big hit with attendees. The session, moderated by Mary Cunningham (left), Chicago Deferred Exchange Co., and featuring experts (from left) Jason Salmon, Kay Properties & Investments; Mark Baran, Four Springs Capital; Steven P. Katkov, Cozen O'Conner; and Marc Wieder, Anchin, Block & Anchin, covered the implications of tax reform on net lease—namely, 1031 exchanges.
Though 1031 exchanges of real estate were spared in the legislation's final version, they were eliminated for personal property. Yet there are other changes. Anchin, Block & Anchin's Marc Wieder (right) pointed out that while sellers would previously be able to include FF&E in the asset, they now cannot do so. "You will never get the buyer and seller to agree on what amount of the purchase price is allocated to tangible personal property because buyers want a high basis for depreciation purposes. Sellers want low selling price to minimize the tax on the transaction," he said, as Mark Baran (left), Four Springs Capital, and Steven P. Katkov (center), Cozen O'Conner, looked on.
On April 4-5, some 300 commercial real estate professionals attended the 16th Annual RealShare Net Lease conference. Hosted by ALM Real Estate Media at the Park Lane Hotel in New York City, the widely anticipated event drew professionals from across the net lease spectrum and featured some of the biggest and most active names in the business. From connecting over cocktails to obtaining insight on trends during a day packed with dynamic sessions, RealShare Net Lease provided attendees with the advice, information and resources they need to navigate today's net lease market. Scroll through the slideshow to take a look at the industry's main national net lease event of 2018.
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Sule Aygoren
Aygoren oversees the editorial direction and content for ALM’s Real Estate Media Group, including Real Estate Forum and GlobeSt.com. In her tenure with ALM, she’s held roles of increasing responsibility, including Managing Editor. Aygoren has received several awards for her coverage including Best Trade Magazine Report from the National Association of Real Estate Editors and the James D. Carper Award for Young Journalists. Under her direction, Forum has received four national NAREE awards for Best Commercial Real Estate Trade Magazine.
