MARYSVILLE, WA—As investors continue to see the value in multi-tenant retail with drive-thrus, a newly constructed 11,142-square-foot property located in the Seattle metro area has recently sold. The six-tenant property consists of two retail buildings of 5,542 square feet and 5,600 square feet, and is 100% leased to Starbucks with a drive-thru, Pacific Dental Services, Jersey Mike's Subs, Dickeys, AT&T and OneMain Financial.

Hanley Investment Group's executive vice presidents Jeff Lefko and Bill Asher represented the buyer, a private investor from the Seattle metro area, and the developer and seller based in Henderson, NV. Hanley Investment Group has also sold 25 Starbucks assets, most at record pricing in the last two years located throughout the US and currently has three properties listed for sale that include Starbucks.

During that time, Hanley sold 86 multi-tenant retail assets across the country valued at $573 million including three retail properties in the Seattle metro area at record pricing. Along with the Marysville transaction, Hanley Investment Group has arranged the sale of a two-tenant Pacific Dental and CHI Franciscan Health property in Puyallup, WA, and a new construction two-tenant Starbucks with a drive-thru and Pacific Dental at a WinCo Foods-anchored shopping center in Federal Way, WA, selling for a total of $17.77 million in the last 10 months.

"There remains an extremely strong demand for this product type in the Pacific Northwest," said Lefko. "We procured a 1031 exchange buyer based out of the Seattle area that opened escrow with a large non-refundable deposit to secure the deal (in Marysville). Starbucks relocated from the adjacent center because it wanted a drive-thru. Starbucks had been looking in this market for a long time and jumped at the opportunity to relocate to this freeway adjacent location. Now more than ever, investors are more focused on market and retailer fundamentals, corporate long-term leases and essential services types of retailers, specifically those with drive-thrus."

The property is adjacent to Interstate 5 on/off ramp at 88th Street Northeast located at 8820 and 8830 36th Ave. Northeast. Retailers and entertainment in the area include Tulalip Resort Casino, stores at the Seattle Premium Outlets, Cabela's, The Home Depot, Walmart Supercenter, Bob's Burgers, Haggen, Safeway, Applebee's Grill + Bar and Panera Bread.

"In the past 24 months, CoStar reports that there have been 109 multi-tenant retail sales in the state of Washington with an average sale price of $2.41 million, representing a 6.25% average cap rate," Lefko tells GlobeSt.com. "Within the multi-tenant retail category, the new construction multi-tenant pad space is certainly experiencing cap rate compression in part due to a lack of quality supply in 2020."

And, Washington State properties in the multi-tenant category have been increasing, Asher says.

"In 2018, 48 multi-tenant retail properties in the state of Washington sold for an average sale price of $2.06 million," Asher tell GlobeSt.com. "The number of retail property sales transactions jumped to 69 in 2019, an increase of nearly 44% year-over-year. The following year, the average sale price rose to $2.40 million, an increase of 16.5%, while the average cap rate compressed to 6.21% in 2019, from 6.41% in 2018."

One of the reasons for this dramatic increase in the number of transactions in 2019 was the anticipation of the new real estate excise tax/REET that went into effect on January 1, 2020.

"Washington State's flat 1.28% state real estate excise tax was changed to a graduated tax scale based on the selling price of the property," Lefko tells GlobeSt.com. "Under the new law, many property owners are seeing substantially increased taxes on the sales of real estate and interests in property-owning businesses. With the exception of timberland and agricultural real property, which continues to be subject to a state REET rate of 1.28%, the excise tax rate on the sales of real property is now 1.1% if the property sold for $500,000 or less, 1.28% if between $500,000 and $1.5 million, 2.75% if between $1.5 million and $3 million or 3% if over $3 million."

Washington mandated the Department of Real Estate adjust this scale every four years depending on future markets, Lefko explains. The legislature also extended the REET definition of sale as the transfer or acquisition of a controlling interest in an entity with an interest in real property in Washington from 12 to 36 months.

"With the changes in the REET, we are seeing how asset values have been impacted, depending on the price point," Asher tells GlobeSt.com. "The larger the price point, the more it will impact value based on the new tiered tax structure. Many property owners showed more motivation to close prior to year-end 2019 in anticipation of the tax change."

Going forward, the higher tax rates will be a new factor in how sellers evaluate expected net proceeds. It will put future sellers in a new position to readjust pricing expectations as sellers have historically been responsible for payment of the REET upon a sale, Asher observes.

"Even with this new change, we've seen a continued strong demand for multi-tenant retail leased to national or regional credit tenants. The last two transactions sold by Hanley Investment Group in 2020 in Marysville and Puyallup in Washington State are prime examples that sold at premium cap rates approximately 70 to 80 basis points lower than the average 6.21% cap rate in 2019," Asher tells GlobeSt.com.

Marysville is a city in Snohomish County and is located 35 miles north of Seattle, adjacent to Everett on the north side of the Snohomish River delta. It is the second-largest city in Snohomish County after Everett, with a population of 69,779 (2018). Within a five-mile radius of the property, the population count is 84,374 with an average household income exceeding $79,500.

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WA State Multi-Tenant Assets with Drive-Thrus are Investor Favorite

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