GRS Group was well represented among the hundreds of firms recently at the king of retail real estate shows, ICSC’s RECon in Las Vegas. Among the professionals at RECon helping clients with potential due diligence, title insurance, financial advisory and other services, was Allen Brown, national accounts manager and Arizona operations manager at GRS Title Services. Brown spoke about the positive feedback he received from other attendees and trends he sees in the retail sector.
Based on your RECon experience, what is your feeling about how the retail real estate industry is doing?
Overall there is a high level of confidence. There are still some areas that are soft. But this is the most optimistic I’ve seen this conference in five years. More people are doing deals, and I see a lot of fresh faces walking around, which means that people are hiring. If they’re hiring, that means things are doing better.
What is driving that optimism?
There is a lot of capital out there right now that is looking for a place to land, and it’s landing in single-tenant net-lease retail. It’s giving a yield, or return on investment, that they’re not getting elsewhere. It’s a flight to real estate for yield.
Are single-tenant assets immune to the rough spots in the country?
In most areas. There are still some areas where it’s kind of soft. My hometown Phoenix, for example, is still a little soft, as is Las Vegas. But there are some deals, with a strong enough tenant, that will trade at a good cap rate, and that’s attractive.
And we’re seeing new construction in this sector as well, right?
We are seeing it especially in the dollar-store segment. That’s the biggest construction segment that I’ve seen. There are some people I have done work with in the past that only do Dollar Generals. And they’re not going in the traditional spaces. What we’re seeing them do is go in rural areas where construction is cheaper. But right now there are a couple of sites being looked at in Phoenix for infill.
Do you think we’ll see more ground ups beyond the dollar stores, with restaurants and other tenants?
You don’t have many chain restaurants doing that at all. As we mentioned in our last conversation, we’ve seen Buffalo Wild Wings take an existing building, gut it and do a very nice job on it, and it was cheaper for them to do that then acquire the land, strip down the building and rebuild it. It really depends on the location. It’s the old real estate adage: location, location, location.
I’ve heard a little concern about overheating in single tenant. Are you worried about that at all?
It’s a very strong sellers market right now. There is a pent-up demand, so supply is lowering the cap rates, which increases the purchase price. When you start to look at that and wonder if we are headed for another mini bubble, I don’t know the answer to that. In 13 months it’s gone from virtually nothing to a very strong market. There is a lot of capital, and a lot of capital leads to competition, which leads to higher prices.
What was GRS trying to achieve at RECon?
I use this conference as a way to see several of my clients that I work with around the country without having to travel to a lot of places. There is a lot of walking and a lot of hard work, and we try to get a report card on our existing customers and talk to other customers about the various services that we have. We’ve found that there are a lot of companies out there that have contracted in size over the last five years, and they’re not hiring back as quickly. We fill that niche, providing them with multiple services, that one stop, or one call, scenario. That saves them a lot of time and also allows us to bundle the services, which results in savings. There is a lot more interest in that now then there was five years ago. Things have changed. Clients don’t look at a title company as a title company or a due diligence company as a due diligence company.
What kind of niche are you personally providing for your clients?
There are a lot of single-tenant triple-net-lease retail properties. I am centered in that area. That’s who I go after. I talk to some of the small REITs and the brokers and try to let the parties know that they should order early on in a transaction. They should control where and when it’s being delivered. It gives them a leg up, so when the capital finally gets to the table, we can move very quickly. We’re getting people to do that. They still believe they’re going to sell their property, so they’re willing to pay some up-front costs before it goes out to market, understanding that it’s probably going to sell.