Demand Up for Single-Tenant Assets

But, according to Bernie Haddigan, managing director of the firm's National Retail Group, "more investors are likely to focus on the higher-return, non-investment-grade market, and cap rates in this segment are likely to decline somewhat. While returns for some of the most desirable assets have fallen below 5%, the marketwide average is in the high 6% range.

"Tremendous amounts of capital are going into retail," Haddigan continued. "We're seeing an active market. 2006 is a great year to do business, and there's momentum going into 2007."

In terms of the economy that's fostering this activity, "we sense a lot of optimism around this convention," said Hessam Nadji, M&M's managing director of research. He did concede that consumers appear to be "overstretched," which raises some questions, especially regarding housing. "The housing slowdown we've been talking about is here, at least in its early stages," he continued. "The bloom is off the rose in housing." And while he does see some slowdown in retail growth, "6% growth is projected, and that's still healthy. The job market is doing great."

Asked by Haddigan, who moderated the panel, where he would put his capital, Bobby Turner, managing partner of Canyon Capital Realty Advisors responded, "there are two ways to make money in real estate--sell correctly and buy successfully. In that context, densely populated, diverse communities are a key target and they're not getting enough capital. Urban areas are not without risk, but they offer the greatest opportunities."

Responding to the same question, Daniel Hurwitz, SVP/CIO for Developers Diversified Realty said, "development is the best return for capital. Returns are at historic levels, and cap-rate compression has been historic." And Paul Moulton, EVP of Costco agreed with the invest-in-development assessment.

As far as challenges in the ongoing investment market, "it's finding the right partners to invest with over the next 18 months," Moulton suggested. For Hurwitz, it's "understanding the risk factors involved." And for Haddigan, it's "how do we manage the expectations of both sellers and buyers."