Throughout this record-long period of economic growth, there have been two asset classes that have performed particularly well: industrial and net lease. For investors, the two combined can yield interesting results.
That’s the message heard by the more than 175 attendees of the fifth annual Net Lease Summit. One panel focused on the industrial and healthcare sectors, moderated by Jeff Lizzo, senior vice president of STREAM Capital Partners. Joining him were Peter Bauman, senior vice president at JLL; Joe Binder, senior vice president at Inland Private Capital Corporation; Jerry Hopkins, executive managing director at Newmark Knight Frank; Brian Mansouri, senior vice president, investments at Global Net Lease, Inc. and Camille Renshaw, CEO and co-founder of B+E.
“I’d say we’re definitely in extra innings,” Binder said. “In fact, the bullpen is empty and now we’ve got position players pitching.”
Most of the panel, though acknowledging the extraordinary length of this particular development cycle, still felt that there is still room for growth.
“If you look at market today and compare it to a year ago, there were deals we thought we were overpaying on then,” said Mansouri. “But I’m glad I bought because today we would be paying more. Real estate is frothy right now; deals are still getting bid up right now, so I think we have some time to go.”
While most of the panel remained bullish on the overall market, Mansouri had his reservations. Much of the optimism, he pointed out, hinges upon investors and financiers not showing the recklessness that led to the last recession.
However, he said that he has seen plenty of deals, particularly in sale leaseback transactions, where people are sacrificing structure. For industrial in particular, there are different levels of performance, depending on a number of factors.
“The typical logistics asset is the most popular, especially if you are focused on yields. The assets that are least sought after are manufacturing,” Mansouri said. “The other thing is scale; regardless of the type of asset, if there is scale, and we need to place capital, that deal will get bid up.”
Renshaw agreed on the importance of scale, saying that they include it as a metric when pricing deals. She also sees the popularity of distribution, though even there the market has shifted slightly.
“Here in Chicago, WBS Equities is known for doing sale-leaseback in cold storage and food-related properties,” Renshaw said. “They looked at how to make more money in cold storage, and for them it’s been strictly marijuana.”
For net lease, growth is not always good. Hopkins pointed out that some distributors, such as FedEx, are growing so fast that they renew option after option, ultimately leaving a building once they outgrow it.