Kohl's Trades At Record-Low Cap Rate

LOS ANGELES—An 88,000-square-foot Kohl's retailstore has traded hands for $22 million with a 4.8% cap rate in a private transaction with an unnamed buyer and an unnamed seller. The 4.8% cap rate broke the record for the lowest cap rate in the US by 50 basis points, and it was the lowest cap rate for a single-tenant transaction over $20 million.

"The opportunity to buy such a high quality asset is unusual in the market," Ed Hanley, president of Hanley Investment Group, tells GlobeSt.com. "You don't see too many credit worthy, triple-net-leased assets come available in Southern California. If they do, they are grabbed pretty quickly by private investors.” Hanley's colleague EVP Eric Wohl adds, “The Los Angeles area Kohl's represents an excellent opportunity for an investor to take advantage of the tax savings derived from the depreciation of the building and improvements.” Hanley and Wohl represented the seller in the transaction along with Kevin Fryman.

The buyer, a private investor based in Northern California, purchased the property in a 1031 exchange and plans to hold the property long term. “It was a perfect fit for them. The great location, visibility, access and great tenancy of the shopping center, and the credit of the tenant all were attractive to buyer,” says Hanley. Consumers in the surrounding three-mile radius have an average household income of $102,000. While both the buyer and the seller did not want the details of the sale released, Hanley does add, “The seller sold the property because of optimal market conditions for an asset like this with term remaining.”

Demand for single-tenant properties is strong throughout the Los Angeles market, and inventory for quality products is dwindling. Yesterday, big-box retail brand Ikea announced its plans to move forward with a 456,000-square-foot retail store development in Burbank, which will replace its current 242,000-square-foot location, and has named a contractor for the job. An investor has already scooped up its old location, although it will remain occupied by Ikea through 2017.