The Federal Reserve’s New Economic Outlook

Early last week, the Federal Reserve held its Federal Open Markets Committee (FOMC) policy session. At this meeting, Chairman Jerome H. Powell and the other committee members debated the FOMC’s next moves for supporting the economy moving into the latter part of 2020.

New Economic Projections

As part of last week’s meeting, the Federal Reserve released revised economic projections for the remainder of the 2020 fiscal year. This set of projections are the first to be released since December 2019. At the end of last year, policymakers anticipated a two percent growth in gross domestic product (GDP) and a low unemployment rate of 3.5 percent. The updated projections show a GDP decline of 5.6 percent and a 9.3 percent unemployment rate. (The latest forecast from the bipartisan Congressional Budget Office shows similar figures.)

By the end of 2020, the Federal Reserve expects the economy to resemble what it was circa 2009. (For context, the country was, at that time, in the midst of what is now known colloquially as “The Great Recession.”) With that fact in mind, it comes as no surprise that FOMC Chairman Jerome H. Powell said the following in a post-meeting press conference: “We’re not thinking about raising rates.”

The U.S. Economy Is in a Recession

The National Bureau of Economic Research (NBER) recently announced that the United States entered a recession as of February 2020. This marks the end of an economic expansion that lasted for 128 months. The length of the current recession will be determined by several factors, including domestic production and rates of employment.

Although more people have either gone back to work or have found new employment opportunities as states have begun to reopen, employment rates continue to remain high. This, plus the patchwork approach to reopening and a sharp decline in demand, has led to a promise from the Federal Reserve to not raise interest rates, at least for the time being.

New and Expanding Programs

In the face of the COVID-19 pandemic, the country’s central bank has worked to reactivate and expand emergency programs that were put in place during The Great Recession. The Federal Reserve implemented liquidity programs back in March, which flooded the country’s financial system with around $3 trillion. While this did lead to some improvement in market conditions, the Federal Reserve has had trouble setting up its two new credit programs: the Main Street Lending Program and the Municipal Liquidity Facility.

The Main Street Lending Program was created to provide credit to mid-sized businesses that are considered “too large” to receive government-backed small business loans. The program was established with approximately $75 billion in equity provided by both the Treasury Department and the CARES Act. On June 15, the Federal Reserve announced a proposal that would expand its current Main Street Lending Program to include nonprofit organizations.

Navigating These Uncertain Times

Ground + Space is a leading commercial real estate firm that specializes in single-tenant and retail NNN investments. In these uncertain times, there is still a high demand for income-producing assets leased to credit-rated tenants. We have several listings available featuring retailers that are in a prime position to succeed in a post-pandemic economy. We are committed to providing up-to-date information and best-in-class services to clients during the COVID-19 pandemic and beyond. The market changes daily, so please contact one of our brokers for specialized guidance during this time.

Stay Healthy and Safe

The Centers for Disease Control and Prevention (CDC) offers daily updates and other information about COVID-19 symptoms and testing in the United States. Johns Hopkins University (JHU) has created a resource to help inform the public and advance comprehensive understanding of the novel coronavirus and its effects backed by experts in global public health, infectious disease and emergency preparedness. Additionally, the World Health Organization (WHO) continues to track the number and location of confirmed cases of the virus across the globe.


The Future of the CRE Market

The United States economy is feeling the effects of COVID-19 since all non-essential sectors have been in a near-total shutdown since mid-March. Most states around the country won’t be lifting lockdowns and shelter-in-place orders until at least the end of May. The COVID-19 pandemic has sent the country’s unemployment rate soaring to a record 14.7 percent, a level not seen since the end of the Great Depression.

Over the course of the next few weeks, many retailers will slowly begin to open their doors to customers for the first time since the pandemic began. While this is a good sign, the success of any reopening effort will be determined in part by the average consumer’s willingness and ability to venture out to purchase more than essential items like groceries and gasoline.

Economists do not have an answer as to what the full impact of COVID-19 will be on the U.S. economy. However, most economists do agree that there will be a significant negative effect, both in the U.S. and across the globe. How will all this economic news affect the commercial real estate (CRE) market? Let’s take a look.

Sharp Spike in E-Commerce Sales

Several major retailers have been hit hard by the effects of COVID-19. Those retailers who had yet to adjust to changing consumer habits have had to turn to bankruptcy and outright closure over the past few weeks. Some of the retailers affected most by the pandemic are J.C. Penney, Neiman Marcus, Stage Stores, J.Crew and Pier 1 Imports.

On the other hand, retailers like Kohl’s have seen a spike in digital sales even as their brick-and-mortar stores have been closed for at least two months. Online sales grew to a staggering 60 percent of the brand’s total sales in the month of April, and that trend is expected to continue. Walmart has also seen skyrocketing digital sales, led by strong results for grocery and delivery services. Walmart also benefited from being designated as an “essential business.” Throughout the pandemic, all of the retailer’s U.S. stores remained open.

The Health of the CRE Market

The health of the CRE market going forward will be determined by the approaches retailers take to reopen storefronts and the impact of increased e-commerce adoption rates. Many economists anticipate that consumers will continue to rely heavily on e-commerce transactions. Retailers both large and small that can provide customers with a digital shopping platform will fare better than those with no online presence. While standalone retail assets should bounce back to pre-coronavirus levels once treatment plans are in place for COVID-19, many mall anchors, full-priced apparel retailers and mom-and-pop stores in small strip centers might not be so lucky.

Sales activity in the CRE market has fallen by approximately 17 percent since the pandemic began. Despite this sharp decrease in activity, capitalization rates have remained steady. Rates have fallen by only about seven basis points according to CoStar data. Most investors and landlords are focusing on rent collection and vacancy concerns for the time being, but there is still a demand for high-quality SNTL retail.

Experts in STNL Retail

Ground + Space is a leading commercial real estate firm that specializes in single-tenant and retail NNN investments. We have several outstanding retail assets on the market right now. Our CVS Pharmacy listing features a NN corporate-guaranteed lease that was recently extended by 20 years. The Tire Choice property that is currently available is situated within a dense retail corridor in The Villages, Florida and boasts a brand-new 20-year NNN lease. Our team is committed to providing up-to-date information and best-in-class services to clients during the COVID-19 pandemic and beyond. The market changes daily, so please contact one of our brokers for specialized guidance during this time.

Stay Informed

The Centers for Disease Control and Prevention (CDC) offers daily updates and other information about COVID-19 symptoms and testing in the United States. Johns Hopkins University (JHU) has created a resource to help inform the public and advance comprehensive understanding of the novel coronavirus and its effects backed by experts in global public health, infectious disease and emergency preparedness. Additionally, the World Health Organization (WHO) continues to track the number and location of confirmed cases of the virus across the globe.

 


Just Sold: Orange City Shoppes in Orange City, FL

Ground + Space announced today the sale of Orange City Shoppes, a multi-tenant retail asset located in Orange City, Florida. Ground + Space Principal Michael Zimmerman exclusively marketed the property. The property sold at an admirable cap rate just three percent off the original listing price in an all-cash transaction. Additionally, the listing received multiple purchase offers.

The Orange City Shoppes tenant roster includes Aspen Dental, Spectrum and Orlando Health. These service-based businesses yield an added security with Internet-proof tenancy. The new, corporate guaranteed leases for all three tenants boast built-in rent increases and multiple renewal options. Also, there are minimal landlord responsibilities within the lease for ease of investment.

Orange City Shoppes benefits from its prominent location within Orange City’s main retail sector. The property is an outparcel to Target and sits across from a 107,000-square-foot Publix-anchored shopping center. There is a growing development commitment to the area, evidenced by AdventHealth Fish Memorial’s $100 million tower expansion less that one mile from the site.

About Ground + Space

Ground + Space is a net lease brokerage firm that leads with an emphasis on personalized relationships. Michael Zimmerman, Brett Sheldon and team have curated a brokerage firm and investment sales platform focused on boutique amenities and down-to-earth service. Ground + Space is rooted in more than 20 years of experience aimed at providing the best data, relationships and success rates in the business. Interested in commercial real estate investment? Looking to sell one of your net leased assets? Contact us today for a property evaluation or to discuss one of our current listings.


Triangle News: October 2019

The constant influx of new and expanding businesses in the Triangle has led to an increase in the number of jobs now available in the area. This, in turn, has spurred the development of Class A office, retail and restaurant space to meet the needs of a rising workforce population, not to mention an influx of new single- and multi-family housing communities.

Raleigh

East Raleigh’s Continued Development: The city of Raleigh recently received a rezoning request that would allow for the development of a multi-story apartment community east of Interstate 440. The plans proposed call for a 204-unit multi-family complex with buildings up to four stories. This development would help add residential development to a part of the city scheduled for continued economic development. If this rezoning request is approved, the apartment community will join a long list of other single- and multi-family developments in the Triangle, all of which are set to meet the large demand for housing as the area’s population continues to soar.

Glenwood Avenue Project Begins Taking Shape: A Raleigh-based developer has begun construction on 3800 Glenwood, a five-story building with a mix of office and restaurant space set to open in 2020 just south of Interstate 440. This 118,000-square-foot building will feature 109,000 square feet of Class A office space and an additional 9,000 square feet of ground-floor restaurant space. Other features of the property include structured parking with a covered walkway for pedestrians, rooftop amenity space, artwork by North Carolina artisans and much more. 3800 Glenwood is part of the larger Glenwood Place master development plan, which spans a total of 40 acres.

Hilton-brand Hotel Coming to PNC Arena: Local sports fans will have a new place to stay overnight near the PNC Arena thanks to a new Hilton Garden Inn planned for a site across from the home of the Carolina Hurricanes and the N.C. State basketball teams. Current plans call for a 135,00-square-foot, seven-story hotel complete with 194 parking spaces, a conference center, a rooftop restaurant and bar, a grand ballroom and multiple meeting rooms. The Hilton Garden Inn Wade Park is just one of many new hotel projects scheduled for the Triangle area, outpacing development in the rest of the country. Although hospitality industry growth is beginning to slow across the nation, local occupancy rates continue to rise with increased demand.

Triangle Town Center Area’s Newest Addition: The Pointe at Town Center is one of the many new multi-family developments in the works in and around Raleigh. This 636,000-square-foot apartment community will include a mix of 484 senior living and affordable family apartment options. Plans include a mix of one-, two- and three-bedroom apartments spread across a total of 11 buildings. The undeveloped site sits just south of Triangle Town Center, which features tenants like Barnes & Noble, Macy’s, Dillard’s, H&M and North Carolina’s only Saks Fifth Avenue. This apartment community will help aid the demand for affordable housing options in the Triangle market.

Warehouse District Turned Retail and Dining Hub: Two Raleigh-based real estate firms have joined forces on another mixed-use revitalization project in the city’s Warehouse District. The project—known as the West Cabarrus Warehouses—calls for the renovation of two industrial buildings that will transform the area into a retail and dining hub, complete with the largest outdoor seating and live entertainment courtyard in the downtown area. Developers hope the project will add to and benefit from the constant activity around the Warehouse District.

West Raleigh’s Newest Apartment Community Breaks Ground: Construction has begun on West Raleigh’s newest apartment community, Clairmont at Trinity. A Virginia-based developer has plans to build a 153-unit complex on a 7.8-acre parcel near the Interstate 40 and 440 interchange along Trinity Road. The upscale community will feature a mix of studio, one- and two-bedroom apartments and is scheduled to open in summer 2020. Apartments will boast a wide variety of amenities like garden tubs, private patios and balconies, walk-in closets and complimentary washer/dryer units. The community will also feature outdoor seating areas, a dog park, a resort-style pool, a parking garage, bike storage and much more.

Durham

TopGolf Eyes Plans for Expansion in Bull City: A 46.3-acre parcel in Durham is slated to be the future home of a TopGolf-anchored mixed-use development. A South Carolina-based developer plans to build the TopGolf facility—which could cost upwards of $15 million—along with several other complimentary commercial spaces. Current proposals for the mixed-use center show plans for a 40,000-square-foot fitness facility, two hotels, 150,000 square feet of office space, a restaurant, a Sheetz gas station and an iFly Indoor Skydiving facility. (Sheetz and iFly Indoor Skydiving are currently under contract.)

Chapel Hill

New Development Proposed Near Bustling Mixed-Use Hub: A new mixed-use development has been proposed for Chapel Hill, long known as a high barrier-to-entry market. The town’s tax base is primarily residential, making this an ideal opportunity for Chapel Hill to attract more office and commercial development. Initial concept plans for Bella Vista at Meadowmont Village Center feature a 150,000-square-foot building featuring mostly office space, plus room for ground-floor restaurant and retail space. The proposed site is across from the UNC Finley Golf Course and is currently occupied by a parking lot.

Interested in investing in North Carolina commercial real estate? Ground + Space is a leading commercial real estate brokerage firm based in North Carolina that specializes in single-tenant and retail NNN investmentsContact us today to find out more about our current listings or sign up for our mailing list to stay in-the-know on all that North Carolina has to offer.


Multi-Tenant Retail Investments Attract Opportunity

Retail is constantly changing, and so is the commercial retail real estate market. Although overall transaction numbers have been slightly down from years previous during the first three quarters of 2019, quality investments are still up for grabs. Savvy retail investors are gravitating towards investments with safer outlooks and focusing on smaller transactions. Even though private investors have historically focused more on single-tenant assets, a great many of those same investors are now looking to expand their portfolios by acquiring multi-tenant properties.

Benefits of a Multi-Tenant Investment

The addition of a multi-tenant commercial real estate asset to an investment portfolio can help lead to better yields and diversification within a single investment property. A multi-tenant property can help mitigate the risk of future tenant vacancies by sometimes offering shorter rental terms that can be adjusted and replaced as needed. Also, when a suitable, complementary mix of tenants are brought together within the same center, those retailers can leverage each other to help drive sales and foot traffic. This creates retailer dedication to the site and oftentimes increases the chances of the longevity of a tenant’s presence in a market.

Finding the “Right” Multi-Tenant Property

Not all multi-tenant properties are created equally, so it’s important to consider the strength of each individual tenant when making investment decisions. A strong, varied tenant mix is vital to the success of the investment as well as the property’s long-term value.  Right now, investments that are getting the most attention feature service-based businesses that offer Internet-proof tenancy via services that can’t be purchased online. Grocery-anchored centers that feature strong brands like Publix, ALDI or Wegmans (among others) are also at the top of investors’ lists.

Ground + Space Multi-Tenant Listings

We have three multi-tenant properties currently on the market that are ideal for any investor. All our listings feature a solid mix of national and regional tenants with a focus on service-based businesses. Each property is in the state of Florida, which has no state income tax.

Orange City Shoppes: The property benefits from a prominent, signalized corner location within Orange City’s main retail sector. The multi-tenant site is an outparcel to Target and is across from a Publix-anchored shopping center. The new, corporate-guaranteed NN leases for all three tenants provide for a quality investment with minimal landlord responsibilities. Additionally, each lease features built-in base term rental increases and options to renew. View more information about this property or download an Offering Memorandum by clicking here.

Shoppes at Eustis Village: This multi-tenant site features prominent signage and shares a signalized corner intersection with the Eustis Village Publix retail center. The property is comprised of three separate buildings that feature an ideal mix of national and regional tenants. (The seller recently spent over $100,000 to separate the property into three individual parcels.) The NNN leases provide for a quality investment with no landlord responsibilities. Additionally, there is a significant investor upside potential at 100 percent occupancy. View more information about this property or download an Offering Memorandum by clicking here.

Shoppes at Solaris: The site is located along busy Gulf to Bay Boulevard and is adjacent to Clearwater Mall and other national retailers like Target and Marshalls. Shoppes at Solaris also benefits from its proximity to Solaris Key Apartments, a four-story luxury apartment community in Clearwater. The multi-tenant property is now fully leased to quality tenants: Caribou Coffee & Einstein Bros. Bagels, Tijuana Flats and Curry Leaves Express. Each NN lease features varied lease terms and multiple options to renew. View more information about this property or download an Offering Memorandum by clicking here.

Interested in learning more about our multi-tenant property offerings? Ground + Space is a leading commercial real estate brokerage firm based in North Carolina that specializes in single-tenant and retail NNN investments. Contact us today to find out more about our current listings or sign up for our mailing list to stay updated on the latest commercial real estate news and offerings.


What is a Sale-Leaseback?

As retailers and commercial real estate property owners look to increase returns on capital investments in an uncertain market, the sale-leaseback option is becoming more popular. So, what exactly is a sale-leaseback, and why is it an enticing option for retailers?

The Basics of a Sale-Leaseback

In a typical sale-leaseback transaction, a property owner (like a chain retailer) sells the real estate used in its business to a separate investor (either private or institutional) while simultaneously leasing that same property from the purchaser. The sale-leaseback transaction can include either or both the land and the improvements, and usually features a triple-net lease arrangement. These transactions also typically accommodate fixed lease payments to provide for amortization of the purchase price over the lease term, options for the seller to renew the lease and, on occasion, an option for the seller to repurchase the property at a future date.

The Benefits of a Sale-Leaseback

There are many advantages to a sale-leaseback for retailers. Gaining capital for things like adding store units or paying off business debt are just some of the many ways a sale-leaseback can provide greater return on investment. With a sale-leaseback, the seller regains use of the capital that went into the purchase of the property. The seller usually receives more cash return with a sale-leaseback transaction than through a conventional mortgage financing plan.

With a sale-leaseback, the seller is often able to structure the initial lease term for a period that meets its needs without having to worry about refinancing, balloon payments, appraisal fees and other substantial costs. For a business looking to expand its footprint, this means there would be little to no need to take out a high-interest loan in order to make improvements or open new locations. Additionally, the seller is in a better position to negotiate rental rates and renewal options at the time of sale with a new property owner. Another bonus: rental payments from the newly established lease are fully tax deductible.

Investing in a Sale-Leaseback

For the investor, a sale-leaseback transaction can offer attractive, steady returns. With a fresh lease in place at the time of the transaction, there is less risk of tenant default. Sale-leaseback transactions also typically result in lower management costs and the associated risks thanks to the longevity of the lease. Depending on the lease term and scheduled rental escalations, the sale-leaseback will likely hedge against any future inflation. Additionally, the investor can now capture any future appreciation in the real estate asset.

Things to Consider

Although a sale-leaseback transaction might at first seem advantageous, it’s important to understand both the benefits and the potential risks of such a transaction. Changes in accounting rules or tax reforms can affect the way income from a sale-leaseback transaction is reflected on a company’s balance sheet. However, the demand for single-tenant properties typically sold via sale-leaseback is on the rise. Lower cap rate trends are driving the market and could result in increased sale-leaseback activity.

Are you interested in selling commercial real estate assets? Ground + Space is a leading commercial real estate brokerage firm that specializes in single-tenant and retail NNN investments. The team at Ground + Space works to analyze current market data to offer clients best-in-class service. Contact us today to learn more about how a sale-leaseback transaction could benefit your business strategy.


Just Sold: CVS in Lexington Park, MD

Ground + Space announced today the sale of a CVS in Lexington Park, Maryland. This property is a 10,125-square-foot retail asset prominently situated within a fast-growing retail corridor. Ground + Space Principal Michael Zimmerman exclusively marketed the property and represented the seller, an Alabama-based corporation. The property sold for an admirable cap rate of 5.48 percent.

The NN lease features a corporate guarantee and an extremely rare 20 percent rental increase within the first option period. The tenant recently extended the base term of the lease by 20 years. The current lease term will last through 2037, signaling a strong commitment to the site.

The property sits at a signalized intersection with nearly 23,000 cars passing daily. Visitors to the site benefit from easy connections to major highways including Interstates 95 and 495. The CVS is close to an expanding retail area along Route 236 and Great Mills Road that features a strong mix of national and local retailers. Lexington Park itself is an affluent area with a prominent military presence that provides a $3 billion impact to the local economy annually.

About Ground + Space

Ground + Space is a net lease brokerage firm that leads with an emphasis on personalized relationships. Michael Zimmerman and team have curated a brokerage firm and investment sales platform focused on boutique amenities and down-to-earth service. Ground + Space is rooted in more than 20 years of experience aimed at providing the best data, relationships and success rates in the business. Interested in commercial real estate investment? Contact us today to find out more about our current listings!


Just Sold: Cary Multi-Tenant Strip in Cary, NC

Ground + Space announced today the sale of the Cary Multi-Tenant Strip in Cary, North Carolina. This property is a 9,788-square-foot multi-tenant asset that features three tenants: Sleep Number, Zoës Kitchen and PM Pediatrics. Ground + Space Principal Michael Zimmerman exclusively marketed the property and represented the seller, a Florida-based commercial real estate development company. The property sold for a superior cap rate of 6.11 percent.

This multi-tenant property is a prominent outparcel to Target and Home Depot. The site is positioned at the heart of a dynamic retail trade area in Cary, North Carolina. Each NNN lease features a corporate guaranty, two options to renew and scheduled rental increases of 10 percent. The leases also provide for ease of ownership with minimal landlord responsibilities.

With more than 40,000 cars passing the site daily, the property benefits from its highly visible location along Walnut Street. The multi-tenant site sits within an affluent community of more than 160,000 residents and has access to more than two million Triangle area residents. The site has easy access to Interstate 440 thanks to its position between the state capitol of Raleigh, North Carolina and the renowned Research Triangle Park (RTP).

About Ground + Space

Ground + Space is a net lease brokerage firm that leads with an emphasis on personalized relationships. Michael Zimmerman and team have curated a brokerage firm and investment sales platform focused on boutique amenities and down-to-earth service. Ground + Space is rooted in more than 20 years of experience aimed at providing the best data, relationships and success rates in the business. Interested in commercial real estate investment? Contact us today to find out more about our current listings!


The Need-to-Know Considerations of a Triple Net Lease Investment

A triple net lease, often called a net-net-net (NNN) lease, is a commercial real estate agreement in which the tenant agrees to cover the net real estate taxes, building insurance, and maintenance fees in addition to the agreed-upon rent. Every triple net lease is different, however, and typically has unique scenarios and parameters. Accordingly, an investor, landlord or tenant must perform a thorough assessment of the agreement before proceeding. Below are the most applicable considerations regarding triple net lease investments.

Unit Economics

Unit economics outline the direct revenue and cost associated with the business model within the space. A proper unit-economics assessment enables the investor to determine the relative likelihood of lease renewal as well as predict potential profits. The type of tenant and operational expectations will greatly affect the unit economics, and thus the parameters and considerations of the NNN lease. A Starbucks has different operational expectations than a Mattress Firm, for example, and may want to negotiate a different NNN lease structure. Unit economics analyses are also helpful in comparisons between similar or neighboring locations.

Tenant Quality

Tenant quality in commercial real estate refers to the expected reliability, character and performance of an occupant. Low-risk tenants are typically favorable, primarily because NNN leases often involve single-tenant properties. An investor cannot risk the possibility of losing all forms of cash flow to cover expenses if a high-risk tenant fails and declares bankruptcy. High-risk tenants, however, offer the potential for higher cap rates and higher cash-on-cash returns, and different investors may prefer different levels of risk.

Rent and Term Length

Long-term triple net leases provide stability and longevity, but an investor must pay careful attention to ensure adequate stipulations and predetermined rent raises to account for inflation. Neglecting to account for the gradual decrease in the value of the dollar can cut into profit margins or offset them entirely, depending on the length of the NNN lease. Additionally, triple net leases can include renewal options, which provide investors, landlords and tenants with a viable alternative to a long-term contract. Triple net leases with renewal options are worth considering for less-proven business models.

Early Termination

An early termination clause gives the tenant the ability to sever ties before the lease term is completed and results in a severe risk of cash flow loss in an investment. A tenant is typically required to give ample notice of early termination accompanied by a lump sum payment.

Co-tenancy

A co-tenancy clause is a provision of a retail NNN lease agreement that specifies terms for the potentialities of neighboring businesses. Co-tenancy clauses offer the tenant some form of protection against a major competitor moving next door, or if an anchoring, adjacent business ceases operation or relocates. These types of scenarios can result in a significant change in consumer traffic and tenants may negotiate a co-tenancy clause as a precaution.

Interested in commercial real estate investment? Ground + Space is a leading commercial real estate brokerage firm that specializes in single-tenant and retail NNN investments. Contact us today to find out more about our current listings!