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NGKF’s Rudy Talks NNN Investments, CMBS and M&As
Connect Media spoke with NGKF’s Glenn Rudy, a retail investment expert, about the state of capital markets. Rudy is a panelist at Connect Retail West on March 16th at the Conga Room at LA Live.
1 – In the evolution of retail, should you be chasing cap rates or are other property types becoming more attractive investments?
Investor profiles vary widely, but there will always be high demand for retail investment opportunities, given the general familiarity all investors/consumers have with retail properties, the NNN nature of the cash flows and the above average term of retail leases as compared to other property types. The primary focus of all retail investment in our evolving landscape should be on the fundamentals of the underlying real estate, and the performance of the tenants. There is always a great piece of retail real estate in any given market. Focusing solely on CAP rates is too limiting in today’s market, given the sheer lack of supply.
2 – How does M&A activity affect NNN properties?
M&A activity is ultimately one of the greatest risks in the single tenant NNN space. It can also be one of your greatest rewards. Underwriting the credit of the tenant is the basis of the NNN world. As we are experiencing today, as we have historically, what was investment grade credit before can deteriorate based on category use, a tenant’s exposure to declining performance from e-commerce, and overall macroeconomic influences. Again, understanding the underlying fundamentals of the real estate to ensure long-term viability remains key to a successful long-term investment.
3 – What’s ahead in 2016 for the retail sector in Southern California?
Southern California will continue to thrive, given its high barriers to entry, high levels of discretionary income and overall consumer demand. While secondary markets will continue to bear the brunt of the immediate volatility in the debt markets, core, infill product in primary markets will remain at historic pricing due to the sheer demand from both institutional and private investors. Given the choppiness of the debt markets today, a proactive approach toward looming CMBS maturities will be key.
- ◦Financing
