Net Lease News

B+E Weekly Newsletter

August 22 – August 28, 2023

MARKET

CRE Sales Volumes Show Signs of Life in Q2 | GlobeSt

• Signs are emerging that the market is bottoming, and sales volumes will increase moving forward. There is a lag between offerings and closed transactions, so this recovery is likely another quarter away.
• Industrial volume has normalized, following a strong run. Relative to other asset classes, industrial is the most liquid, with volume topping office and retail combined in the quarter.
• Retail is ahead of pandemic-era lows, coming in at $9.5 billion for the quarter as cap rates have been more stable across retail than other asset classes.

Smaller Sales Again Showing Strength Over Larger Deals | GlobeSt

• CMBS loans below $50 million used to be more in danger of delinquency than loans at or above $50 million. And yet, July showed an inversion of that standard, only the third time in 13 years it has happened. The previous times were July 2012 and June 2020, each one in a period of economic distress.
• $38.89 billion of all properties changed hands in the first half of 2023. In comparison, that number was $55.12 during the same period last year. That was the biggest overall largest six-month decline since 2019. However, in the $25 million-plus category, sales were down 61% year over year. The $5 million-to-$25 million category fell, too, but only 29%.
• The reason is a shift in who’s doing the business. Private buyers tend to be more active in times of stress. “While they’re hamstrung by high-interest rates like their institutional counterparts, their typically much-longer hold periods allow them to view the cost of capital through a different lens,”.
• In smaller deals, the buyers are likely to be private investors, whether family offices, high-net-worth individuals, small syndicates, or someone doing a 1031 exchange. High volatility, while potentially troublesome, is also typically a period that can allow strong trades.

Fed Chair Powell Makes Clear That Monetary Pressure Isn’t Over | GlobeSt

• “We will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data. We will need price stability to achieve a sustained period of strong labor market conditions that benefit all. We will keep at it until the job is done.” Said Powell.
• Getting price changes back to a 2.0% rate is mandatory in the Fed’s eyes. That means not only prices but average nominal wages. These two interplay with each other.
• The Fed isn’t going to make decisions based on a month or two or three of data. They will continue to follow what is happening and are expected not to make any significant short-term changes.

INDUSTRIAL

Amazon Setting a Trend Toward Multi-Story Industrial | GlobeSt

• With the added cost to build, multi-story warehouses are unlikely to become a widespread phenomenon. It’s an intriguing approach, though, as available land, costs, the supply chain, e-commerce demand, and general willingness are stacked on a list of considerations. 
• Amazon dominates the space. It occupies 92 percent, or 75 million square feet, of Class A warehouse distribution properties with 3+ floors. 70% of projects under construction are slated to be occupied by Amazon.
• Multi-story warehouses are arguably the only way to increase the amount of functional space without encroaching on more valuable land for residential and other commercial developments that can fetch higher rent.

RETAIL

Subway to be Sold to Owner of Jimmy John’s | QSR Magazine

• Subway announced Thursday that it’s entered an agreement to sell itself to Roark Capital, a well-known investor in the restaurant space. The Wall Street Journal reported that the deal is estimated to be around $9.6 billion, the largest restaurant purchase since Inspire Brands spent $11.3 billion to buy Dunkin’ and Baskin-Robbins.
• Subway stands as one of the globe’s most extensive restaurant networks, boasting nearly 37,000 outlets worldwide. In the U.S. alone, it leads with approximately 20,000 stores. 
• Subway has remodeled 10,000 of its U.S. restaurants into the “Fresh Forward” design, featuring LED lighting, new floor coverings, containers, tables, colors, and chairs. Also, the chain is making progress toward its goal of increasing North American openings by 35 percent in 2023. 

Restaurants Have Become Attractive Acquisition Targets | GlobeSt

• Restaurants have become attractive targets for acquisitions despite ongoing challenges with sales rising 10.3% over the previous year in the second quarter of 2023 following a 3.2% gain in Q1.
• Nevertheless, sale activity remained below pre-Covid levels. Similarly, median cash flow rose 4.2% in Q2 2023 but was still 1.4% below its level in the same period in 2022.
• Buyers are especially interested in buildings with food and beverage operations that are owned by the operator.
• Such operators could also represent targets for takeovers by competitors searching for equipment, employees, or location upgrades, with the added advantage of enabling new operators to set up quickly, without the hassle or cost of securing brand-new assets. 

Slim Chickens Announces Opening in Murfreesboro | QSR Magazine

• Slim Chickens announced its new restaurant opening spearheaded by the reputable multi-unit operator, Houchens Food Group. This is their second opening in the area marking the brand’s eighth location in the state.
• The better-chicken brand has opened more than 240 locations across the United States and the United Kingdom. The brand is known and loved for its hand-breaded, cooked-to-order tenders and passionate group of followers within the markets it operates. With more than 1,150 locations in development, the brand’s momentum continues to prove its stronghold in its segment. 
• The brand prides itself on its cooked-to-order fresh food and strong devoted fanbase. Slim Chickens has distinguished itself in the “better-chicken” segment by offering high-quality food and 17 house-made dipping sauces, allowing customers to enjoy a different flavor profile with each visit.