Drive-in chain Sonic has closed 11 Florida restaurants, among them locations in Hillsborough, Pinellas, Sarasota, Manatee, Hernando, Polk, Citrus and Levy counties.
Read more: Sonic shutters 11 Florida restaurants | Tampa Bay Business Journal
Comments: This is another reminder of the need to conduct proper due diligence when purchasing single tenant, net lease properties as an investment. Sonic’s design and locations frequently make the sites difficult to redevelop for some other use.
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Excerpt from GlobeStreet.com (click for full article):
“Volume of single-tenant property sales has declined, to be sure; RCA reports $3 billion of single-tenant properties changing hands during the first half of this year, which equates to a 60% drop from the same period last year. For retail and industrial properties, transactions are down 70%; for office assets, transactions are down 50%.
But—and here’s the cup is half full point of view—single-tenant property sales accounted for nearly one-quarter of all retail, industrial and office sales during the first half of this year. That, RCA’s report notes, is “a significant rise over the 10-15% market share averaged over the past few years.”….”Sale-leaseback transactions, meanwhile, are down by about two-thirds. “Sale-leasebacks, which accounted for 30% of single-tenant property sales in 2007, have accounted for just 10% in 2009,” RCA reports.”
Comments: There is surprising activity in net lease property sales. I feel there are two reasons behind the movement:
1. Flight to quality – Many investors these days are asking for investment grade tenant properties with long term leases (+10 years) because of adverse economic conditions. These are tenants that are rated investment grade or higher by Moodys (Aaa to Baa3) or Standard & Poors (AAA to BBB). In a single tenant property, having a long-term investment grade tenant allows you relative financial transparency with the tenant, which theoretically has a sound financial outlook and balance sheet to back the lease.
2. Demographic shift – We are entering a period in which boomer investors wish to reduce their work load and seek more “hands free” investment strategies that allow them to indulge their time in areas of interest while they are still healthy enough to enjoy them. Boomer’s that have owned real estate are more likely to investigate net lease investments, because they perceive that a net lease investment is relatively management free (which they are, when compared to multi-tenant properties).
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