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Net Lease Investors Seek Essential Real Estate During Pandemic

With the pandemic spreading, investors have increasingly pursued essential properties. Let’s see what’s hot and what’s not…

Photo Courtesy of The Mansour Group/Marcus & Millichap

A private investor bought an Albertson’s grocery store in San Diego that remained open while most businesses in the city had closed to curb the spread of the coronavirus.

Property records show the investor paid $22.1 million for the grocery store.

Though large parts of the country were closed, grocery stores were deemed essential. With the pandemic spreading, investors have increasingly pursued these types of essential properties.

The properties tend to be single tenant and have net leases in which the tenant pays for most of the property’s operating expenses instead of the landlord. The landlord earns a return on investment for taking the risk with the tenant.

Investors shielding themselves from capital gains taxes through so-called 1031 exchanges have been the biggest drivers in sales.

The Alberton’s deal was such an exchange. Kevin Mansour, with Marcus & Millichap, said the buyer rolled proceeds from the sale of an apartment building into that purchase.

With these exchanges, the seller has 45 days to choose the next property and close within 180 days of the first sale. Because of the coronavirus pandemic, the IRS extended the deadline.

Investors now have until July 15 to close on a deal if either the 45-day sale agreement or 180-day closing deadline was scheduled to expire between April 1 and July 15 this year.

Investors across the country snapped up more than 300 single-tenant properties since mid-March when the first cities and states started shutting down.

“Dollar General has been one of the hottest things out there,” Mansour said.

Walgreens, CVS and Rite Aid, the three largest drugstore chains, have emerged from a lull. While drugstores are now back in focus, “not many new ones have been built for several years,” said Barry Wolfe, a broker with Marcus & Millichap.

Brokers said that the properties that will see gains will be medical properties such as urgent care and dialysis centers and real estate leased to fast food and fast-casual chains.

Only a handful of casual dining properties have sold across the country in the past two months.

Even with cities allowing dine-in restaurants to reopen, local rules are preventing them from packing in the crowds. So, they won’t be operating at full capacity for a while.

Until the coronavirus pandemic passes and the economy is fully on the mend, investors will shy away from casual dining real estate for the most part, brokers said.

2020 CoStar News.

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