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By Karen Gentry | TransActions
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GRAND RAPIDS – Real estate investors looking for stable and high returns are turning to single tenant investments on properties leased by companies such as Applebee’s, Dollar General, Family Dollar or Taco Bell.

Normally, people don’t sell these high-quality, net leased investments because they are like a “mailbox annuity,” according to Pete Colvin, national director of single tenant net leased investments for Sperry Van Ness Silveri Company in Grand Rapids.

“Right now, real estate investors need to sell their good investments to raise money to support their bad ones,” Colvin told TransActions, noting these investments offer a good opportunity for investors who have cash. He said there’s $10-$20 million being invested every day in these sorts of high credit deals.

Through these types of investments, chains and franchise businesses expected to be around for a long time rent the building while the landlord owns the facility and the land. The landlord has little direct involvement and low management requirements. These investments are favorable in Michigan because there’s a 75-100 basis point difference in price.

“Someone in Illinois can buy a property in Michigan for less with a higher cap rate than any other state,” said Colvin.

The capitalization rate is the ratio between the net operating income produced by an asset and its capital cost or current market value. The higher cap rates are in part because Michigan has been singled out as a very rough state where it’s hard to get financing, and people have to sell their property a little cheaper than other states to make the deal happen.

“The best deals in the country are in Michigan,” Colvin said, noting banks and insurance companies are getting back into making loans.

Major chains including Dollar General and Family Dollar in the extreme value retailer category have posted quarter-over-quarter gains, according to recent single-tenant data from Marcus & Millichap Real Estate Investment Services in Grand Rapids. Value chain store openings increased by 60 percent from 2001-2009.

Investors are attracted to the low price tag associated with single-tenant property and less risk with single tenants typically with long-term, 10- to 20-year leases, according to Marcus & Millichap. Investors can also choose tenants with different credit profiles.

Compared to anemic returns in savings accounts and volatile stocks, investors in one of these strong credit real estate deals can make 12-14 percent on their money right now and that could increase each year as rents go up, according to Colvin. Buyers can take advantage of low prices and as the economy heals. The value of their property is probably going to increase as well, which could result in an additional 6-7 percent annually in principal reduction on their loan.
“Then they’re making 20 percent on their money, which is incredible on a very, very safe investment. This has never happened in the history of real estate,” Colvin said.

Life is good for Colvin, whose company has closed on many of these deals in the last 12 months.  The Sperry Van Ness Silveri Company team has sold 17 Applebee’s, 30 Taco Bells, six Walgreen’s, five CVS stores, 14 Burger Kings, 13 Rite Aids, 25 dollar stores and about 20 auto parts stores. A Taco Bell property usually sells in one day with two or three offers as soon as it goes on the market. Besides West Michigan, Colvin has been busy in the metropolitan Detroit area, closing four deals there totaling about $10 million in late June.

Colvin specializes in these investments with his partner Dave DeMaagd, a CPA and MBA with manufacturing experience who originally sought out Colvin to find him a dollar store to invest in as a long-term, safe investment. The pair saw the potential and have cornered a lot of the market, Colvin said. Most investors are individuals or families looking to invest $500,000 - $2 million.

“Our average deal price is $1.5 million,” Colvin said.

Colvin views the single-tenant leased investments as the only bright spot in commercial real estate in challenging times.

“There’s not a lot of growth in office, industrial or retail right now. The rest of the markets seem pretty flat,” Colvin said.

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TAGS:

• commercial real estate
• dave demaagd
• grand rapids
• pete colvin
• sperry van ness silveri company