California Capital Heads to Phoenix for Net Lease Investment

California capital is heading to Phoenix for net lease investment. As a result, the market has seen significant increases in net lease investment volume. According to a recent report from CBRE, net lease investment in Phoenix totaled $1.7 billion, double the activity from 2017, and has been named a high-growth market for net lease assets. Opportunity and an investor affinity for low-management assets are driving the increased activity.

“We are seeing activity at an all-time high. The buyer demand for net lease asset is unprecedented. Every property is receiving multiple offers and many of the buyers are exchange buyers. If you compare single-tenant net lease assets to an apartment building, as an example, it is much less management intensive,” Joe Compagno, SVP at CBRE, tells GlobeSt.com. “There is a lot of capital coming out of California and into Arizona for net lease real estate. That capital is looking for long-term, stable leases with publicly traded companies that provide a predictable cash flow.”

California-based investors are buying the majority of the current net lease trades in the market, and that includes all net lease assets: industrial, office and retail. “On our listings, nine out of 10 buyers are out of California, and out of those, 75% of them are in a 1031 exchange,” says Compagno. “Those buyers are locking in some large profits off of equity growth that they have seen in their properties over the last 10 years since the recession. They are moving that money east, and Phoenix is the first market that they come to because, ultimately, this is a good, growing market.”

Among these deals, all assets are seeing strong demand from California capital; however, single-tenant retail properties, namely quick-service, are offering the most opportunities at accessible price points. “All of the asset classes are popular. I focus on retail, and we have a lot of $2.5 million to $3 million opportunities and alternatives,” says Compagno. “In office and industrial, you get into bigger price points.”

Looking ahead, Compagno expects the demand for net lease assets to remain strong, and the recent interest rate cut will only help to fuel interest and activity. “Interest rate cuts will only help to fuel demand and good pricing for the market,” he says. “Phoenix is seeing strong population and job growth, and there are a lot of people moving here. It is a great growth market.”