MIAMI—Fast-food restaurants are seeing strong investor interest in Florida. McDonald's and Wendy's are recent targets in the net lease sector in Central and South Florida—and specifically secondary and tertiary markets in these regions.
A newly-constructed McDonald's property that sits along State Road 540 in Winter Haven, FL, just traded hands. A private family trust in a 1031 exchange just acquired the ground lease on the property, which sees about 20,000 cars pass by each day. The McDonald's is across the street from a CVS and Publix grocery store.
Randy Blankstein and Jimmy Goodman of Boulder Group represented the buyer. The seller was a Michigan-based developer.
“The market for ground leases with investment grade tenants remains highly active as investors are attracted to the typical long-term leases with rental escalations,” says Blankstein, president of Boulder. The new McDonald's ground lease is for 20 years. There are 10% rental escalations every five years throughout the lease.
“McDonald's ground lease properties continue to trade at the most aggressive cap rates in the entire net lease market due to their investment grade rating rental escalations, and relatively low price point,” says Goodman, a Boulder partner. McDonald's market capitalization is in excess of $91 billion, making the ground lease a strategic investment.
Meanwhile, 12 Wendy's restaurants across South Florida traded hands as part of a sale-leaseback portfolio deal. The sales price of $26.5 million represents a 6% cap rate.
Adam J. Tiktin, first vice president of investments, and Debra Franklin, associate, both in Marcus & Millichap's Miami office, along with Philip Rosen, managing partner at Bloomgarden, Goudreau & Rosen, P.A., represented the seller, Coral Springs, FL-based Starboard Group. Todd Cohen, associate, Drew A. Kristol, vice president investments, and Kirk D. Olson, vice president investments, all also in the firm's Miami office, represented the buyer, a Miami Beach, FL-based company.
“This was a unique opportunity to acquire a portfolio of exceptionally located, well-performing Wendy's restaurants,” says Tiktin. “The average annual store sales of each of these locations exceeded the Wendy's national average annual sales per store.”
Farhan Kabani, associate vice president capital markets with Mark One Capital, arranged financing for the transaction. The 10-year, nonrecourse debt placement amortizes over 30 years and the LTV is 67%.
“The buyer was specifically interested in this portfolio because the transaction parameters fit his 1031 exchange requirements,” says Cohen. “In addition to the strong cash flow offered along with annual rental increases, the South Florida locations are rare infill sites that all boast strong traffic and high visibility.”
At close of escrow, Starboard signed a new 20-year absolute triple-net lease. Starboard currently operates Wendy's locations in Alabama, Philadelphia, South Florida, Southern New Jersey and Virginia. The South Florida properties are located in Boca Raton, Delray Beach, Deerfield Beach, Sunrise, Coral Springs, Miami, and Miramar.
As product for sale in the net lease asset class becomes ever scarcer and primary market yield decreases, secondary and tertiary markets are looking ever more appealing to investors, said speakers at RealShare Net Lease West earlier this month. “It's a sellers' market, but it's also a buyers' market since interest rates are at all-time lows and buyers are able to get attractive financing,” said Gordon Whiting, managing director of Angelo, Gordon & Co.
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