With the combination of single-tenant commercial assets bottoming out for cap rates and a lack of investment properties available for this type of property to meet demand, commercial investors in STNL have increasingly looked outside their comfort zone, but not too far.

Commercial and industrial asset lines have and continue to fade and merge with each other. As e-commerce continues to capture more market share from the traditional retailer and vacancy rates are extremely low, STNL’s traditional retail investors have turned their attention to STNL’s industrial assets. This is a logical and strategic progression for those looking for passive, cash flow assets that are poised to see demand and appreciation for years to come.

Over the past few years, our STNL Group, which started out in the retail sector, has added several billion dollars in industrial STNL industrial sales and accounts to our mix and we see this growing exponentially in the near future. and distant.

Here are some of the main reasons why STNL Industrial has been an attractive investment for the traditional retail buyer.

1. The industrial sector is hot: As I mentioned above, industrial vacancy rates are tight with rising rents and continued demand from industrial property occupiers, many major markets across the country are experiencing vacancy rates of 3 % and below. Investors realize the important role the supply chain plays in getting products from businesses to consumers and want to invest in real estate assets that are an integral part of this supply chain, whether warehouses, production facilities, sorting and last mile facilities. distribution facilities. Investors personally understand the connection between the consumer and this type of property.
2. Location flexibility: Unlike a grocery store or quick-service restaurant with drive-thru, which must be located on a Main & Main location, STNL industrial assets have less restrictive location requirements. This opens up a wider geographic area and more options for investors to consider when researching assets. For example, a last mile distribution facility may be on the outskirts of town and still have greater value to a user and, subsequently, to an investor.
3. Pricing: Industrial asset prices per square foot can be less than half the price of a comparable STNL commercial building, as the net retail lease lends itself to higher rents per square foot. Cap rates for industrials can also be higher than for long-leased retail properties, although this gap has narrowed over the past 24 or so months. With rising interest rates, industrial assets can generate attractive returns, especially compared to some higher quality retail businesses.
4. Sale-Leaseback Disposals: Similar to the popular and coveted retail STNL leaseback offerings, industrial leaseback offerings are very popular with investors, both public and private. Much like sale-leaseback retail strategies, investors are drawn to the stability of single-tenant assets with new long-term leases negotiated at the same time as closing, and they prefer rent and base fundamentals that many sale-leaseback offers offer the investor. That said, we have structured the industrial sale-leaseback transaction the same way we do retail sale-leasebacks, which promotes a smoother transaction process. This includes longer leases commonly found in retail businesses of 10-15-20 years, absolute net leases with tenants absorbing all or most of the expenses and liabilities associated with them, and scheduled increases.

Sale-leasebacks will continue to be a popular transaction. For operators themselves, this strategy offers an increasingly popular funding alternative as it provides increased liquidity to operators so they can deploy in growing their business, opening new facilities and repaying debt, among other uses of capital.

The industrial STNL world will grow as e-commerce increases its market share. With a substantial base of 1031 exchange buyers and small to medium sized offices, we will see more and more players expanding their portfolios in this sector, including REITs, institutions and large investment firms.

Matthew Mousavi is Managing Director of National Net Lease Group, SRS.