Stockton Property
IRVINE, CA-Seven buyers have acquired NNN-leased fast-food properties in California, Texas, Nevada and Arizona as cap rates decline for such properties and a bigger buyer pool competes for smaller properties like the fast-food restaurants and related NNN deals, according to locally based Faris Lee Investments. The seven fast-food property sales were part of nine deals closed recently by Faris Lee. The other two were a multi-tenant retail center in Riverside, CA and a single-tenant medical building in Tustin, CA.
Aggregate sales prices of the nine properties totaled more than $20 million. Jeff Conover, senior managing director of Faris Lee Investments, commented on the cap rate phenomenon: “We’re seeing major cap rate compression right now for single-tenant NNN-leased investments such as these fast food-occupied properties. These are a great alternative for high-net-worth individuals seeking an investment that delivers more than the current less than 1% returns from bank CDs. These properties, even with low cap rates, can provide 6% to 7% annual returns to the investor.”
Conover represented the various sellers of the seven fast-foot properties, all of which were paid for in all-cash by the new buyers. Closing cap rates ranged from 6.4% to 7%. The properties all attracted multiple offers, illustrating the large buyer pool for them, according to Rich Walter, president of Faris Lee.
“The buyer pool is much larger for properties at smaller price points,” Walter said. “There are numerous investors with cash on hand to purchase outright properties near or under the $2 million mark.”
The seven fast-food deals included a ground lease for a 2,806-square-foot Jack in the Box at 25699 Baseline St. in Highland, CA that Napadoson, LLC of Newport Beach, CA bought for $1.2 million; a 2,857-square-foot Jack in the Box at 9360 W. Tropicana Ave in Las Vegas that A. Mashayekan Trust of San Diego bought for $1.835 million; a ground lease for a 2,654-square-foot Jack in the Box at 4910 S. Val Vista Drive in Gilbert, AZ that Ching Chan of New York City bought for $954,000; a 1,691-square-foot Jack in the Box at 5423 Evers Rd. in San Antonio that Lucky Trust of Scottsdale, AZ bought for $756,000; a 3,096-square-foot Jack in the Box at 9965 Lower Azusa Rd. in Temple City, CA that Dolux Inc. of Laguna Hills, CA bought for $1.66 million; a ground lease for a 3,316-square-foot El Pollo Loco at 1510 E. Hammer Lane in Stockton, CA that Shakoori Trust of Los Angeles bought for $1.65 million and a 3,292-square-foot Burger King at 14868 Bear Valley Rd. in Victorville, CA that JMNG Inc. of Northridge, CA bought for $1.41 million.
Magnolia Plaza, Riverside
The Riverside property that sold was Magnolia Village Plaza, a 38,060-square-foot retail center at 10901 - 10995 Magnolia Ave. that includes a newly renovated freestanding Taco Bell with drive-through, two retail pads and in-line shops anchored by Kaiser Permanente. The property, which sold for $6.75 million in a 1033 exchange, is situated near the 91 Freeway just east of the intersection of Magnolia and La Sierra, across from the Riverside Regional Kaiser Permanente Hospital.
Nick Coo, director with Faris Lee Investments represented the seller, BU Management, a private investor from Southern California. The buyer was Newell Owenby Trust of Southern California, which was represented by Reza Kassrian of Pars Global. The property closed at a 7.1% cap rate, which is the lowest cap rate for a retail strip center sold in the City of Riverside over the last 18 months according to Costar.
The 1033 exchange resulted after Faris Lee discovered that Newell Owenby Trust had recently sold a property to the City of Garden Grove that would be condemned and was looking for a property to acquire as part of a 1033. Because Owenby had sold its previous property to a municipality for condemnation, it could transfer the favorable tax basis from the previous property into Magnolia Village Plaza via the 1033 exchange. Faris Lee points out that the 1033 structure created more value in the final sale price for BU, as well as the buyer who was unaware of the 1033 exchange tax advantages.
Tustin Property
“Faris Lee advised the buyer to consult with its accountant in order to take advantage of the tax basis transfer of a 1033 exchange which can occur when a property is sold to a municipality for condemnation,” Walter explained. “This provided an even lower real estate tax bill than a typical 1031 exchange. It gave the new owner more options for attracting new tenants to Magnolia Village Plaza by passing along to them attractive rental rates. The structure also increased overall returns due to lower triple-net fees.”
Before putting the property on the market, Faris Lee negotiated with several financing institutions and identified a lender that provided an attractive financing quote, which also helped add more value and enhanced the final sale price, Coo said. Built in 1988 and renovated in 2007, Magnolia Village Plaza was 87% occupied at the close of escrow and includes major tenants, Taco Bell, Kaiser Permanente and Joe’s Bar & Grill, as well as MetroPCS, Liberty Tax Service and others.
In the Tustin sale, another 1033 exchange, Orange County, CA-based Sig Trust bought a two-building, 10,125-square-foot medical outpatient facility at 1095 Irvine Blvd. from PCF-Tustin LLC of Newport Beach, CA for $4 million. The property, which sold at a 6.5% cap rate, was built in 1970 and remodeled in 1995. Conover and Walter represented the seller.
The property is occupied by a single tenant who has been in it since 1995 and who recently extended its lease for another five years with rate increases. Conover notes that the tenant has also invested in ample upgrades in order to service physicians specializing in family practice, internal medicine, pediatrics and other specialties, “making for a stable and secure buy with a strong tenant and well located real estate.” Faris Lee also worked with the existing lender of the property, Northern Trust Bank, to help the buyer assume the current loan at under 6%.
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