Capital Is Heading Out of State for NNN Retail Deals

California capital is heading to other markets for single-tenant triple-net deals. There are limited opportunities in California for triple-net deals, and in addition to the intense regulatory environment, investors would rather own triple-net assets in other markets. 1031 Exchange buyers make up a huge portion of this capital, driven by retiring owners looking less management-intensive assets.

“A lot of these investment sales are 1031 exchange money, and nearly two-thirds of private exchange money is coming from the West Coast and predominately California,” Eric Carlton, EVP at Colliers International, tells GlobeSt.com. “In the last couple of years, inventories have become low as private 1031 demand continues to grow. That has forced California money anywhere in the country to look for these types of deals.”

The dearth of single-tenant triple-net opportunities and high pricing in California isn’t the only factor driving capital into other markets. Buyers are also moving capital to softer regulatory and lower tax states. “In the last year, California buyers would actually prefer to be outside of the state because of the business climate here and the taxes and regulations. If investors can do it, they want to be out of California,” adds Carlton. “You get better pricing and they can be in a [better regulatory environment.]”