Know of any real estate companies busy in this space? We have a small portfolio ($150M) and looking to get growth equity.
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From a development standpoint, they really aren’t. Most are being built due to a tenant contracted commitment and developers are taking a hit on construction completion. Sales transaction velocity is way down. Most all deals being bought and sold are 1031 exchanges, unlevered. You’d need 60-70% down to make financing work, so that’s no good.
Thanks, about what I figured. Can’t really underwrite these things to anything higher than a 7.5% unlevered IRR, but feels like it’s a good time to scoop up scale at high 6% cap rates unlevered and hopefully add on leverage in the future.
We're developing about 120 STNL parcels in the SE USA right now. Our competitors are just as busy. Build to suits are largely not penciling. Only 2 of the 120 are BTS, and they're both sub 6% yield on cost. They're only getting done because they're grocery users, and their presence makes enough of a material impact to grow the leasing rates for the surrounding pads, which we're also developing. Vast majority of the development activity in your subject line are ground leases (with varying degrees of site development and offsite contributions) and land sales with minor site development.
Not sure if you're looking for growth equity to capitalize your developments or to buy income producing properties, but the pref equity market for this type of development has started to open up. A broker from SRS recently reached out and mentioned they have an equity fund going after this kind of stuff. Also was approached by one of the larger NNN REITs to start a draw down equity fund, but the reality is that money is too expensive. Finding the leasing demand is more important than finding the cash to execute right now.
Anything newly constructed, investment grade, and under $5MM PP is getting gobbled up by 1031 money, keeping cap rates down. If we take a NNN Chase Bank for example- it's clearing somewhere between a 4.50 - 5.00 cap depending on geography. Maybe there's opportunities to buy and refi later in the $6MM+ range, but in my markets there aren't many of them IMO. Not sure if that answered your question but feel free to DM.
Very helpful
We have an existing IPP portfolio (with a few outpad developments underway that we are achieving attractive yield-on-costs on).
We like to go after older properties (1990 -2010s vintage) with exceedingly low in-place rents, making it difficult for our tenants to justify going to new properties with 2x rent - we are not scared of going to secondary and tertiary markets.
Was talking about growing IPP portfolio of similar assets (STNL with excess land) but to your point we find the cost of instiutional equity is too high to compete with the 1031 exchange people.
That's awesome. Good luck!
This is the way imo. We target the same investments. I head up acquisitions for a 40+ year old net lease syndicate.
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