MARYSVILLE, WA—As investors continue to see the value inmulti-tenant retail with drive-thrus, a newly constructed11,142-square-foot property located in the Seattle metro area hasrecently sold. The six-tenant property consists of two retailbuildings 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.

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Hanley Investment Group's executive vice presidents Jeff Lefkoand Bill Asher represented the buyer, a private investor from theSeattle metro area, and the developer and seller based inHenderson, NV. Hanley Investment Group has also sold 25 Starbucksassets, most at record pricing in the last two years locatedthroughout the US and currently has three properties listed forsale that include Starbucks.

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During that time, Hanley sold 86 multi-tenant retail assetsacross the country valued at $573 million including three retailproperties in the Seattle metro area at record pricing. Along withthe Marysville transaction, Hanley Investment Group has arrangedthe sale of a two-tenant Pacific Dental and CHI Franciscan Healthproperty in Puyallup, WA, and a new construction two-tenantStarbucks with a drive-thru and Pacific Dental at a WinCoFoods-anchored shopping center in Federal Way, WA, selling for atotal of $17.77 million in the last 10 months.

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"There remains an extremely strong demand for this product typein the Pacific Northwest," said Lefko. "We procured a 1031 exchangebuyer based out of the Seattle area that opened escrow with a largenon-refundable deposit to secure the deal (in Marysville).Starbucks relocated from the adjacent center because it wanted adrive-thru. Starbucks had been looking in this market for a longtime and jumped at the opportunity to relocate to this freewayadjacent location. Now more than ever, investors are more focusedon market and retailer fundamentals, corporate long-term leases andessential services types of retailers, specifically those withdrive-thrus."

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

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

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

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

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

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"Washington State's flat 1.28% state real estate excise tax waschanged to a graduated tax scale based on the selling price of theproperty," Lefko tells GlobeSt.com. "Under the new law, manyproperty owners are seeing substantially increased taxes on thesales 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%, theexcise tax rate on the sales of real property is now 1.1% if theproperty 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% ifover $3 million."

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

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"With the changes in the REET, we are seeing how asset valueshave been impacted, depending on the price point," Asher tellsGlobeSt.com. "The larger the price point, the more it will impactvalue based on the new tiered tax structure. Many property ownersshowed more motivation to close prior to year-end 2019 inanticipation of the tax change."

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

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

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

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Lisa Brown

Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.