Single-tenant properties like restaurants are proving popular with out-of-state real estate investors. Courtesy Sperry Van Ness
A Grand Rapids real estate team recently sold five fully occupied retail buildings in Michigan, three on the southeast side of the state and two in West Michigan, for nearly $5.4 million.
Sperry Van Ness National Single Tenant Group Chairman Peter Colvin and partner Dave DeMaagd, a single tenant specialist, sold three Dollar General stores in Vandercook Lake, Somerset and Chesaning. They also sold an Arby’s near Kalamazoo and one in Grand Rapids.
“Many of our clients are selling their single-tenant net-leased investments now, as they, and we, believe this is the possible peak for pricing,” said Colvin, about the recent activity.
“Real estate values have healed since the recession, and if the interest rates go up in the spring, values could begin to decrease,” he added.
Colvin and DeMaagd completed the transactions with a fairly diverse group of buyers that had various reasons for entering into the deals.
For example, Colvin said the Dollar General stores in Vandercook Lake and Somerset, which are both near Jackson, were bought by an investment group several years ago. The values of both properties have risen since then, and the group decided to sell and take its profit.
The store in Vandercook Lake was sold to an investor in Illinois to complete his 1031 exchange, which is a tax-deferred exchange. It allowed him to sell one property and then buy another, the Dollar General in this case, within a certain time frame and not pay taxes on the transaction.
Unlike sales transactions, the Internal Revenue Service doesn’t tax qualified 1031 exchanges.
The store in Somerset was sold to a group in Detroit made up of accountants and lawyers who were looking for a conservative investment.
“The lease terms have six and seven years left. Both purchases were financed by local banks,” said Colvin.
A northern Michigan investment group owned the Dollar General store in Chesaning, which is southwest of Saginaw. Colvin and DeMaagd sold the property to an investor in California, also as part of a 1031 exchange. “He could get a much better return in Michigan than in California,” said Colvin.
The Arby’s restaurant on 9th Street in Oshtemo Township just southwest of Kalamazoo had been under a long-term lease to Arby’s Inc. “We sold that to a California investor who has family living nearby,” said Colvin.
Colvin and DeMaagd sold the Arby’s on East Beltline Avenue near Plainfield Avenue to Tim Hortons, which plans to convert it to a Tim Hortons Café and Bake Shop.
“We continue to list and sell well-located properties that are leased to strong companies. This type of investment, known as single tenant net lease, is considered by many REITS, trusts, pension funds and individual investors as the most popular type today,” said Colvin.
He added that properties leased to Walgreens, CVS, Rite Aid, Tractor Supply, O’Reilly’s Auto, Advance Auto and corporate-leased fast food and sit-down restaurant sites are highly sought-after properties.
Colvin said he and DeMaagd have listed and sold more than 30 Applebee’s leased properties, as well as those with Taco Bell, KFC, Tim Hortons, Arby’s and others as tenants. Investors have purchased more than 50 “dollar stores” through them over the past several years.
“Numerous real estate investors are selling their apartment complexes, strip centers and office buildings, and reinvesting into single-tenant deals,” said Colvin. “They like the simplicity of ownership. The tenant usually takes care of everything and then just sends a rent check each month.”