Video Recap of Bisnow's Los Angeles Retail & Triple Net Investment Summit

CBRE SVP Phil Voorhees, part of a 12-person national retail investment team that’s done $1.8B in transactions since January '11, says the market is starting to pick up. First-time buyers drove the market in ’05 through ’07, but he’s seeing a more sophisticated investor looking for better yields than they can get in cash or bonds and putting down more cash as opposed to buying with leverage. Single-tenant ground lease deals in particular, where the investor isn’t just buying in at a given cap rate but also getting good fundamentals, are a great estate planning play. "That will drive the market in the next 10 years as we see more baby boomers turning 60."

According to Midtown Niki Group CEO David Trakman, the name of the game has changed to cash flow. Private investors are turning to the triple-net market because they can secure something tangible, but also achieve their goal of having a monthly or quarterly distribution. He contends the extremely low cap rate deals you sometimes hear about aren’t actually real estate transactions but a tax-deferral mechanism. That said, people are seeing the quality of a credit tenant asset, shifting from tax-free munis and other bonds where the yield keeps coming down. A national credit tenant has proven to be something that will be a reliable source of cash flow, he says.

Cole Real Estate Investments acquisitions VP Brian Garrigan says the $12B REIT will do about $800M in single-tenant acquisitions this year. Most of that is outside of California because Cole can get the same credit, return, and good quality real estate in Chicago and have a huge cap rate arbitrage—upwards of 100 to 200 bps. He says the market has shifted dramatically over the past three years. In 2009, the company was buying Midwestern Walgreens at an 8% cap; today, that same Walgreens would sell for 6.25%. Another example is McDonald's. “That is a tenant and market that just baffles me.” A doctor or dentist will go after that aggressively, all-cash, and pay a 4.75% cap.

Citing a flight to yield, Sands Investment Group founder Chris Sands says clients are talking about wealth preservation versus wealth creation, and seeking stabilized long-term triple-net investments with investment-grade backing on the lease. From the seller’s point of view, they’re seeing cap rate compression because of the lack of supply and huge demand. “We’re starting to see cap rates where we saw them in early 2006 to 2007, right before the bubble.” Example: SIG closed a single-tenant Vons grocery on Wilshire Boulevard in Santa Monica at a 2.5% cap.