Market Positioning and Pricing Analysis · Starbucks Coffee Wienerschnitze NNN Indian Bistro NNN...

P R E S E N T E D B Y

Juan Bustamante

Agent Candidate

Bakersfield Office

Tel: (661) 377-1866

Fax: (661) 377-1848

[email protected]

License: CA 01880908

Market Positioning and Pricing Analysis

H&R BLOCK 10209 Main St • Lamont, CA 93241

H&R BLOCK

Lamont, CA

ACT ID Z0890049

N O N - E N D O R S E M E N T A N D D I S C L A I M E R N O T I C E

Non-EndorsementsMarcus & Millichap is not affiliated with, sponsored by, or endorsed by any commercial tenant or lessee identified in this marketing package. The presence of any

corporation's logo or name is not intended to indicate or imply affiliation with, or sponsorship or endorsement by, said corporation of Marcus & Millichap, its affiliates or

subsidiaries, or any agent, product, service, or commercial listing of Marcus & Millichap, and is solely included for the purpose of providing tenant lessee information

about this listing to prospective customers.

ALL PROPERTY SHOWINGS ARE BY APPOINTMENT ONLY.

PLEASE CONSULT YOUR MARCUS & MILLICHAP AGENT FOR MORE DETAILS.

DisclaimerTHIS IS A BROKER PRICE OPINION OR COMPARATIVE MARKET ANALYSIS OF VALUE AND SHOULD NOT BE CONSIDERED AN APPRAISAL. This information has

been secured from sources we believe to be reliable, but we make no representations or warranties, express or implied, as to the accuracy of the information. References

to square footage or age are approximate. Buyer must verify the information and bears all risk for any inaccuracies. Marcus & Millichap is a service mark of Marcus &

Millichap Real Estate Investment Services, Inc. © 2018 Marcus & Millichap. All rights reserved.

2

10209 Main St, Lamont, CA 93241

PRICING AND VALUATION MATRIX

NOTES

PROPERTY NAMEH&R BLOCK



3

PRICING AND VALUATION MATRIXPRICING AND VALUATION MATRIX




3


3

#

PROPERTY SUMMARY

OFFERING SUMMARY

#

NOTES

H&R BLOCK

4

OFFERING SUMMARY

PROPERTY OVERVIEW

H&R BLOCK

PROPERTY OVERVIEW

Marcus & Millichap is pleased to present the exclusive listing for a 2,956-square foot H&R Block located in Lamont, CA. This is an Absolute triple NNN Lease with a corporate

guarantee and no landlord responsibilities. This investment offers long term stability of H&R Block Corporate Guarantee with attractive returns (6.23 percent Cap rate). H&R

Block (NYSE:HRB) is a publicly traded company with a current BBB investment grade credit rating by Standard & Poor' s that operates over 12,000 stores across 50 states.

Lamont is Located in Kern County, about 9 Miles South-Southeast of downtown Bakersfield, California and 89 Miles Northwest of Los Angeles. Lamont is Part of the

Bakersfield Metropolitan Statistical Area.

PROPERTY OVERVIEW

New 5 year NNN lease

Building has been renovated

Strong Brand

Corporate guarantee wRecognitionith H&R Block

5

12

TENANT PROFILES

H&R BLOCK

6

H&R Block

H&R Block is a global consumer tax services provider, having prepared more than 720 million tax

returns by and through retail locations and digital solutions since 1955. There are approximately

12,000 company-owned and franchise retail locations in all 50 states, Puerto Rico and other U.S.

territories, on U.S. military bases around the world, and in Canada, Australia and India. An H&R

Block branded retail office is located within five miles

of 95 percent of Americans – covering all demographics

General Information

Tenant Name H&R Block

Website www.hrblock.com

Headquartered Kansas City, MO

Rentable Square Feet 2,956 SF

Percentage of RBA 100.00%

Lease Commencement 5/1/2018

Lease Expiration 4/30/2022

No. of Locations 12000

#

CLOSE PROXIMITY TO:


New 5 year NNN lease

Building has been renovated

Strong Brand Recognition

Corporate guarantee with H&R Block

LOCATION OVERVIEWTENANT SUMMARYPRICING AND VALUATION MATRIX




7

LOCATION OVERVIEW

#






8

REGIONAL AND LOCAL MAP

AERIAL PHOTO

H&R BLOCK

9

PROPERTY PHOTO

H&R BLOCK

10

PROPERTY PHOTO

H&R BLOCK

11

H&R BLOCK

COMPARABLES MAP

12

H&R BLOCK

(SUBJECT)

Mission Bank NNN

Starbucks Coffee

Wienerschnitze NNN

Indian Bistro NNN

SALES COMPARABLES

1

2

3

4

13


SALES COMPARABLES

Avg. 5.92%

0.0

0.7

1.4

2.1

2.8

3.5

4.2

4.9

5.6

6.3

7.0

H&R Block Mission

Bank NNN

Starbucks

Coffee

Wienerschnitze

NNN

Indian

Bistro NNN

Average Cap Rate

Avg. $860.41

$0.00

$200.00

$400.00

$600.00

$800.00

$1,000.00

$1,200.00

$1,400.00

$1,600.00

$1,800.00

$2,000.00

H&R Block Mission

Bank NNN

Starbucks

Coffee

Wienerschnitze

NNN

Indian

Bistro NNN

Average Price Per Square Foot

SALES COMPARABLES SALES COMPS AVG

PROPERTY NAME

MARKETING TEAM

H&R BLOCK

SALES COMPARABLES

rentpropertyname1

rentpropertyaddress1

rentpropertyname1


rentpropertyname1


14

SALES COMPARABLES

SUBJECT PROPERTY

Asking Price $598,000

Price/SF $202.30

CAP Rate 6.23%

GLA 2,956 SF

Lot Size

Year Built 1946

Lease Term Remaining 3.7 Years

H&R BLOCK10209 Main St, Lamont, CA, 93241

1

Close Of Escrow 3/13/2017

Days On Market 45

Sales Price $495,000

Price/SF $128.60

CAP Rate 6.40%

GLA 3,849 SF

Lot Size 21,344 acre(s)

Year Built 1972

Lease Term Remaining 5 Years

MISSION BANK NNN101 Panama Rd, Bakersfield, CA, 93307

2

NOTES

The subject property is a new build-to-suit for Starbucks with a drive-thru

and was just completed in Q1 2016. The property sold for $2.225M with

triple net lease terms. The new 10-year lease offers features 10%

increases every 5 years in both the primary term and (4) 5-year option

periods.

Documents


Sales Price $2,225,000

Price/SF $1,236.11

CAP Rate 4.90%

GLA 1,800 SF

Lot Size 0.44 acre(s)

Year Built 2016


STARBUCKS COFFEE2500 White Ln, Bakersfield, CA, 93304

PROPERTY NAME

MARKETING TEAM

H&R BLOCK

SALES COMPARABLES

rentpropertyname1


rentpropertyname1


rentpropertyname1


15

SALES COMPARABLES

3

NOTES

Founded in 1961 by John Galardi with a single hot dog stand in

Wilmington, California,Wienerschnitzel has grown to be the worlds

largest hot dog chain serving more than 120 million hot dogs a year; and

the chain is famous for their delicious secret-recipe

chili used to smother on fries, hot dogs and burgers.


Days On Market 69


Price/SF $1,796.30

CAP Rate 5.44%

GLA 1,350 SF

Lot Size 16,552 acre(s)

Year Built 2004


WIENERSCHNITZE NNN 3748 Coffee Rd, Bakersfield, CA, 93308

4



Price/SF $280.61

CAP Rate 6.94%

GLA 4,900 SF

Lot Size 0.53 acre(s)

Year Built 1974


INDIAN BISTRO NNN3939 Ming Ave, Bakersfield, CA, 93309

1,819MARCUS & MILLICHAP

PREMIER INVESTMENT SERVICES

Marcus & Millichap is the premier commercial real estate investment services firm in the United States. Founded in 1971 on a unique model that matches each property with the largest pool of pre-qualified investors, we leverage four decades worth of experience and relationships to handle all of your commercial real estate needs. Our team of more than 1,819 professionals in the U.S. and Canada focuses exclusively on real estate investment sales, financing, research, and advisory services.

H&R BLOCK

Founded in

1971 on a

unique

methodology

Largest pool of

pre-qualified

investors in

the industry

Moves capital

across our

network of

investment

professionals

More than 1,819

investment

professionals in

the U.S. and

Canada

WITH AN EXCLUSIVE FOCUS ONreal estate investment sales, financing, research, and advisory services

16

MARCUS & MILLICHAP ADVANTAGE

M O R E T H A N

WIDE RANGE OF CAPABILITIES,

PROVEN EXECUTION PROCESS

Our proprietary platform and wide range of capabilities maximize our client results. As an industry leader in closed transactions with a history of repeat business, you can trust in our decades of process-driven success.

MARCUS & MILLICHAP

CAPABILITIES

PERFECTED

PROCESS-DRIVEN

EXECUTION

H&R BLOCK

Investment Sales and Product

Specialization

Largest Collaborative Investment

Sales Force

Local Submarket Client Coverage

Industry Leading Technology Platform

Real-Time Access to Transaction Data

Access to Competitive Financing

Largest Pool of Exclusive Inventory

Pricing, Marketing, and

Positioning Strategy to

Drive Competitive Bidding

Timeline-Driven Escrow

Management to Mitigate Risk

Transaction Execution for

1031 Exchange Candidates

8,979

47%

4.5

T R A N S A C T I O N S

CLOSED IN 2017


C L O S E D E V E R Y

B U S I N E S S H O U R

CLOSED WITH

OUT-OF-STATECAPITAL IN 2017


17


THE MARCUS & MILLICHAP

ADVANTAGE

REAL ESTATE

INVESTMENT

SALES

FINANCING RESEARCHADVISORY

SERVICES


H&R BLOCK

Largest commercial real

estate brokerage firm in the

country, with specialization in

all major property types and

more than 1,819 professionals

collaborating at every stage

Access to the industry’s

largest inventory of quality

investment opportunities

Superior capital market

expertise, precisely managed

financing, and unparalleled

access to the most competitive

rates, terms, and capital

sources through MMCC

Prominent capital market

relationships with commercial

banks, secured lenders,

debt and equity funds,

life insurance companies,

private and public funds, etc.

Provides clients with the latest

local and national market trends

based on real-time data to

create optimal positioning,

pricing, and marketing strategies

Industry’s most in-depth

understanding of a variety of

property types in numerous

local and national markets,

with over 1,000 research

products produced annually

Comprehensive advisory

and consulting services to

give you buy-sell-hold

decisions based on real-time

market knowledge and research

Maximizes value for our clients

in each transaction and shapes

long-term portfolio strategies

Marcus & Millichap tailors our investment strategies to meet the unique needs and goals of each client. To best serve our clients and to maximize value, we combine our collaborative culture with the world’s most advanced technology to create the industry’s most powerful proprietary marketing system.

18

H&R BLOCK

19


Because we cover a wide variety of property types, Marcus & Millichap gives you access to the industry’s largest investment inventory. Through property specialization and information sharing, our investment professionals cultivate relationships across the U.S. and Canada. We leverage these relationships to provide our clients with the insight and opportunities to maximize their investments.

SPECIALTY

DIVISIONS

MULTIFAMILY RETAILSINGLE TENANT

NET-LEASE

OFFICEFINANCING HOSPITALITY AFFORDABLE

HOUSING

LAND HEALTHCAREINDUSTRIAL MANUFACTURED

HOUSING

SELF-STORAGE SENIORS

HOUSING

STUDENT

HOUSING

When a client hires a local agent, the entire Marcus & Millichap team stands behind that agent. Each investment professional can leverage Marcus & Millichap’s carefully cultivated network of local, regional, and national contacts in order to provide clients with access to our unsurpassed product inventory, large client base that is sourced both internally and externally, and excellent product capital sourcing. Through maximum controlled exposure, our local agents create a maximum result for each client.

MARCUS & MILLICHAP

NETWORK


H&R BLOCK

20

INDUSTRY’S LARGEST SELECTION OF

QUALITY INVESTMENT INVENTORY

H&R BLOCK

INVESTMENT OPTIONS

AND OPPORTUNITIES

The success of Marcus & Millichap is based on our collaborative culture of information sharing across our network of more than 1,819 investment professionals, which maximizes value for each of our clients.

Working with a unique platform that is antithetical to the concept of “pocket listings,” our investment professionals share all listings with the entire Marcus & Millichap team. Each professional specializes in a property type and has a database of local properties and owners, which is leveraged in every client assignment. Because each local agent specializes in a single product type in a specific geographic region, our clients are completely covered across the U.S. and Canada with every investment.

Our foundation of information sharing maximizes pricing for our clients and gives us the largest inventory of any firm in the industry.

THE SIZE AND ACCESSIBILITY OF OUR

INVENTORY ENABLES YOU TO SELL YOUR

PROPERTY AND QUICKLY MOVE INTO

ANOTHER PROFITABLE INVESTMENT.I N 2 0 1 7

T R A N S A C T I O N S C L O S E D

WITH 1031 EXCHANGE BUYERS

1031 EXCHANGES

C U R R E N T LY

$21.2BEXCLUSIVELY LISTED

1 ,819C O L L A B O R A T I V EA G E N T D A T A B A S E S

21


42%

4,760EXCLUSIVE

LISTINGS

Exclusive Listings as of 3/29/2018

* Financing summary not included in Exclusive Listings total

H&R BLOCK

GAIN ACCESS TO THE NATION’S LARGEST EXCLUSIVE

INVENTORY OF PROPERTIES FOR ALL PRODUCT TYPES

797 MULTIFAMILY

1,162 SINGLE TENANT

NET-LEASE

413 FINANCING*

1,665 RETAIL

286 OFFICE

189 HOSPITALITY

59 AFFORDABLE HOUSING

240 LAND

131 INDUSTRIAL

66 SELF-STORAGE

53 HEALTHCARE

30 MANUFACTURED HOUSING

71 SENIORS HOUSING

11 STUDENT HOUSING

22



Whether you’re looking to buy, sell, refinance, or hold, Marcus & Millichap leverages real-time market research to assess local and national trends, with specialized focus on individual property types. Backed by the collaborative culture of industry experts, your local investment professional will walk you through each phase of your investment strategy.

MANAGE AND OPERATE

DISPOSITION AND EXCHANGE ACQUISITION

INVESTOR CONCERNS

Is holding my asset the most

profitable choice in this market?

How can I best take advantage

of the capital markets to

maximize my returns?

Based on my investment risk

tolerance and objectives, what

opportunities should I consider?

How should I position my

portfolio for potential changes

in market conditions?

INVESTOR CONCERNS

Is now the right time to sell?

How can I leverage the capital

markets to maximize my results?

How do I optimize my position

via a disposition?

What alternatives and

associated investment returns

would I have in the event of a

sale?

INVESTOR CONCERNS

When is the right time to buy?

What investment opportunities

are available for my

consideration?

What are the risks in the

current market?

What are my financing options?

How will an acquisition impact

my portfolio’s returns?

MARCUS & MILLICHAP’S

SOLUTIONS

Value and market

positioning analysis

Disposition buyer financing

New acquisition financing

1031 exchange investment

alternatives analysis


SOLUTIONS

Strategic “hold” analysis

Refinance strategic analysis

Quarterly investment

return analysis

Ongoing market and

submarket research

Ongoing product-specific

research


SOLUTIONS

Pre-acquisition analysis

Financial investment analysis

Market and submarket research

Product-specific research

ADVISORY

SERVICES

ACROSS THE

OWNERSHIP

LIFECYCLE

H&R BLOCK

23


MARCUS & MILLICHAP CAPITAL

CORPORATION CAPABILITIES

MMCC—our fully integrated, dedicated financing arm—is committed to providing superior capital market expertise, precisely managed execution, and unparalleled access to capital sources providing the most competitive rates and terms.

We leverage our prominent capital market relationships with commercial banks, life insurance companies, CMBS, private and public debt/equity funds, Fannie Mae, Freddie Mac and HUD to provide our clients with the greatest range of financing options.

Our dedicated, knowledgeable experts understand the challenges of financingand work tirelessly to resolve all potential issues for the benefit of our clients.

Optimum financing solutions to

enhance value

Enhanced control through

investor qualification support


MMCC’s ability to qualify

investor finance contingencies


MMCC’s ability to monitor

investor/due diligence and

underwriting to ensure timely,

predictable closings


quickly identifying potential

debt/equity sources,

processing, and closing

buyer’s finance alternatives

WHY MMCC?

National platform

operating

within the firm’s

brokerage offices

$5.63 billion

total national

volume in 2017

Access to

more capital

sources than

any other firm

in the industry

Closed 1,707

debt and equity

financings

in 2017

H&R BLOCK

24

#


NET LEASED PROPERTIES GROUP

25

Number of Net Leased Properties Sold—

% of 1031 Exchange

Down-Leg Property Type Migration

Source: Marcus & Millichap 12 quarters ending June 30, 2018

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

-

100

200

300

400

500

600

700

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

# Sold % 1031x

APARTME

NTS

53%

NET

LEASED

21%

RETAIL

CENTERS

13%

OTHER

7%

LAND

2%OFFICE

2%

INDUSTRI

AL

1%

MIXED-

USE

1%

#


26

Investors Choose Marcus & Millichap

More than Any Other Firm


The largest team of retail specialists in the

industry

A successful track record with more than

2,800 transactions closed in 2017

7 YEARSIN A ROW

#


27


MOVING CAPITAL, MAXIMIZING VALUE

SOURCES OF CAPITAL

4%NJ

8%FL

6%TX

2%AZ

33%CA

2%IL

25%OTHER

14%NY

2%CO

2%MI

Source: Marcus & Millichap, : 01/01/2017 to 12/31/2017

3%NC

2%PA

#

The Retail Real Estate Investment LeaderA Successful Track Record with More Than 3,550 Transactions Closed in 2017

The data for net-leased categories is for transactions dated approximately from 1986 through December 2016.

Net-Leased Drugstores

2,550 Properties Sold

$12,069,900,000

Net-Leased Restaurants


$16,503,830,000

Net-Leased Banks

871 Properties Sold

$2,326,458,000

Net-Leased C-Stores


$3,676,363,000

Net-Leased Discount Stores


$3,065,022,000


28


Bio

Agent Candidate

Tel: (661) 377-1866

Fax: (661) 377-1879

[email protected]


Juan Bustamante

H&R BLOCK

29

2,775

CLOSED IN 2016

NET-LEASED

TRANSACTIONS

SALESSPECIALISTSNET-LEASED

MARKETING TEAM

PREMIER

ACCESS TO

INVESTOR

PROFILES

Our comprehensive marketing plan gives you access to the full spectrum of investment profiles, with a special emphasison cross-product and 1031 exchange capital.

Foreign and International Buyers

2nd Tier Investors

3rd Tier Investors

1st Tier Investors

Cross-Product Capital

1031 Exchange Capital

Pension funds, advisors, banks, REITs,

and life insurance companies

Opportunistic investors seeking diversification in

other real estate property types

Investors seeking acquisition opportunities

for capital gains tax deferral

Foreign investors seeking domestic

opportunities and technology enablers

that direct foreign demand

Private, individual investors who account for

the majority of transactions in the marketplace

Syndicators, developers, merchant builders,

general partnerships, and professional investors

30

MARKETING PLAN

H&R BLOCK

MAXIMUM EXPOSURE CREATES MAXIMUM VALUE

Our comprehensive marketing plan provides strategic exposure for your asset. Whether the optimal strategy requires maximum exposure within a single profile, broad exposure across all investor profiles, or a hybrid approach, our platform ensures maximum value across every client profile.

Specializing exclusively in investment sales, our network of

more than 1,819 investment professionals throughout the

U.S. and Canada guarantees your property is exposed to the

largest pool of qualified buyers.

We access via our highly organized national product

specialty groups and the regional and national marketing

opportunities they present.

Our collaborative culture across product types,

enabled through MNet, ensures access to the broadest

pool of qualified investors.

Access the Industry’s largest pool of 1031 exchange

buyers, as a result of closing more transactions annually

than any other commercial real estate brokerage firm.

As the leader in investment sales transactions annually, Foreign

capital is drawn to our firm as the conduit to the nation’s largest

exclusively listed inventory. Foreign investors seek our advice,

market reach and long-standing client relationships with the

industry’s largest pool of buyers and sellers.

Marcus & Millichap maintains long-term relationships with

these investors via our IPA divisions, national product

specialty groups, and over 700 senior investment

professionals.STRATEGY

MARKETING

PLAN

FOREIGN AND INTERNATIONAL BUYERS

2ND TIER INVESTORS

3RD TIER INVESTORS

1ST TIER INVESTORS

CROSS-PRODUCT CAPITAL

1031 EXCHANGE CAPITAL

KEARNEYAPARTMENTS

MARCUS & MILLICHAP ADVANTAGEMARKETING PLAN

H&R BLOCK

31

MARKETING PLAN

H&R BLOCK

COMPREHENSIVE

INTERNAL AND

EXTERNAL

EXPOSURE

Our comprehensive marketing plan leverages all channels of communication to maximize property exposure, both internally and externally. We provide and produce offering memorandums, conduct internal and external email marketing, and initiate internal and external telephone contact.

Exposure to the market ultimately determines the final outcome of a sale, and we work to create the best exposure in the industry for your property.

30-DAY LEAD: Finalize financial

analysis, property overview, and

photographs.

DAY 4: Deliver a draft of the offering

memorandum for client approval.

DAY 6: Begin active marketing,

using the offering memorandum

as the focal point. In particular,

highlight the property’s future value.

Once active, the offering

memorandum is available to all

Marcus & Millichap sales

professionals to present to our large

pool of pre-qualified buyers.

30-DAY LEAD: Draft of email

campaign presented for client

approval.

DAY 6: First wave of internal and

external email campaign sent with

tracking capability for “opens.”

Commence follow-up via telephone to

sell the opportunity, gauge

interest,and overcome buyer

objections.

DAY 20: Begin second wave of email

campaign and telephone follow-ups.

Note: Email campaigns continue

throughout the listing period.

30-DAY LEAD: Probable buyer

list created from team’s database,

including probable exchange buyers

from prior 30-day sales comps.

DAY 6: Direct outreach to Marcus &

Millichap sales professionals via

office presentations and telephone

conferences.

DAY 8: Marketing team makes

direct telephone contact with list

of all probable buyers.

Note: Telephone campaigns continue

throughout the listing period.

O F F E R I N GM E M O R A N D U M

I N T E R N A L & E X T E R N A L

E M A I L M A R K E T I N G

I N T E R N A L & E X T E R N A L

P H O N E C O N T A C T

32

PRIOR TO

MARKETINGON MARKET

MARKETING TIMELINEDAYS 11–20 DAYS 21–45 DAYS 46–90

Produce Offering

Memorandum

Produce Flyers

Finalize Underwriting

and Lease Abstract

Client Review of All

Materials

Creation of Targeted

Buyer List

Lender Evaluation

Source Term Sheets

in Capital Market

Client Review and

Approval of All Materials

Activate Listing in MNet,

Our Proprietary Marketing

System, to Instantly Match

Prospective Buyers and

Investment Professionals

with Your Property

Present Property at Local

Sales Meetings

Personally Contact Target

Buyers: Private Hybrid and

Institutional

Source Term Sheets in

Capital Markets

Send Strategic Property

E-Campaign to Prospective

Buyers and Promote 1031

Exchange Parameters

Expose Listing to

www.MarcusMillichap.com:

3,288 Hits Daily

Execute E-Campaign

to Qualified Private

Buyer Pool

Present Property on

National Product Specialty

Group Investor Call and

Regional Calls

Actively Advertise Across

Multiple Platforms

Execute Targeted Print

Campaign

Aggregate, Field

and Present All Offers

Qualify and Refine

Buyer Pool

Provide Access to All

Due Diligence to Mitigate

Retrade, Legal Delays, etc.

Coordinate Escrow Process

Conduct Property

Inspection

Leverage Buyer to Open

Escrow Non-Contingent

Close Escrow

DAYS 1–1010-DAY LEAD

MARKETING PLAN

#





33

MARKETING PLAN

33

MARKETING PLAN

H&R BLOCK

03

02

01

WHY MARCUS & MILLICHAP?

Specialists in product type and geographic location

Creates buyer competition to maximize price and increase probability

of a successful closing

Access to information sharing throughout the largest network of

investment professionals in U.S. and Canada as part of our

collaborative culture

Proactively promotes your property to local, regional, and national

Marcus & Millichap professionals

YOUR LOCAL AGENT

THE MARCUS & MILLICHAP PLATFORM

Repeat clients

Decades worth of experience

Highly-focused specialization

Collaborative culture built on information sharing

Industry-leading technology platform

A HISTORY OF CLIENT RESULTS

Largest database of qualified investors in the industry

Unparalleled access to potential buyers, including one of the

largest databases of 1031 exchange buyers

More than 1,819 investment professionals working collaboratively

to achieve client results

M A R C U S &

M I L L I C H A P

IS A

LEADING

COMMERCIAL

REAL ESTATE

I N V E S T M E N T

S E R V I C E S

FIRM IN THE

AND CANADA

U.S.

34

NATIONAL NET-LEASED RETAIL REPORT

H&R BLOCK

35

Strong Tailwinds Continue to Propel Healthy Economy;

New Tax Law May Encourage Investors to Refine Strategies

Tax reform powers economic acceleration. The new tax law has invigorated

economic growth, boosting consumption and business investment. With optimism

running high, many companies have generated new jobs, dropping the national

unemployment rate below 4 percent. A tightening job market has supported

increased wage growth, expanding personal disposable income more than 2

percentage points above the 10-year average to 5.4 percent. Because of this, core

retail sales have benefited, rising by an average of 5.6 percent in May and June. The

convergence of these factors has resulted in accelerated economic growth that

climbed above 4 percent.

Elevated Treasury rates placing upward pressure on yields. A booming economy

brings with it inflationary risk, prompting the Federal Reserve to tighten monetary

policy. The single-tenant net-leased retail sector may be substantively impacted by a

more disciplined monetary approach as assets are typically responsive to the 10-

year Treasury due to their bondlike parallels. This will coalesce with other

components such as brand, location and lease terms when determining going-in cap

rates. For example, dollar store yields can vastly differ as a number of these assets

are in rural locations, providing potential for higher returns. Conversely, yields for

convenience stores and quick-service restaurants typically maintain a much smaller

range due to their tempered sensitivity to key determinants of cap rates.

* Forecast

** Through June

Over the past year, transaction velocity eased modestly as investors

awaited details on the new tax law. With much of that uncertainty now

relieved, sales activity could accelerate. Furthermore, decreased taxes on

pass-through entities could lead to repositioning efforts, bringing more

assets online and elevating market liquidity.

The 1031 exchange was retained in the new tax law, remaining a

commonly used practice for single-tenant net-leased investors. Investors

favor this tax provision to swap out management-intensive assets for

properties that involve a more passive approach while deferring the

capital gains tax.

Under the new tax law, sale-leasebacks have become an increasingly

popular tactic. With new restrictions on business interest deductibility,

some retailers are selling the real estate in which they operate to

investors, then leasing it back to maximize deductions. This process

opens the door for reinvestment into existing assets and investment into

future plans as more capital would be available.

Investment Highlights


H&R BLOCK

36

New Tax Law Provides Spark to Investors;

Sale-Leaseback Opportunities Could Increase

New provisions, preservation of old ones may boost investor sentiment. Changes to the tax code, as well as the

retention key provisions like tax-deferred exchanges, real estate depreciation and mortgage interest deduction should

keep investor sentiment high for single-tenant net-leased retail assets. Additionally, new pieces to the tax code should

further boost the appeal of these relatively passive investments. For example, the new 20 percent pass-through

deduction enables some active investors using an entity such as an LLC to boost after-tax yields. However, this

deduction comes with restrictions based on income and asset base but offers strong potential for those who qualify.

Additionally, bonus depreciation is a temporary provision allowing investors to increase their current cash flow by

immediately expensing personal property in real estate assets acquired after Sept. 27, 2017.

Changes to tax law could inspire owner/users to seek sale-leasebacks. The most influential change to the tax

code on the single-tenant net-leased retail sector may be new restrictions on business interest deductions. This

provision could encourage companies to utilize sale-leasebacks as they shape their real estate strategies around

lease expenses that remain fully deductible. For owner/users, selling the real estate in which they operate to investors

and then leasing it back from them could maximize profitability, as well as unlock equity for reinvestment into current

operations and funds for potential expansion plans. Also, the previous tax law allowed companies to deduct all of their

interest expenses on their taxes, but the new provisions restrict the deductibility of business interest for companies

with gross receipts in excess of $25 million. Now, interest totaling just 30 percent of earnings before taxes,

depreciation and amortization can be deducted on taxes, further incentivizing companies to pursue sale-leasebacks.

* Through July

** Forecast


H&R BLOCK

37

Solid Fundamentals Aided by New Concepts

Rents benefit from thinned construction pipeline. Available space in the single-tenant net-leased sector will

contract for the ninth consecutive year, pushing national vacancy down to 4.3 percent in 2018. Even though demand

remains strong, construction will continue to taper this year, completing 36 million square feet. The percentage of

single-tenant construction is reduced for the second year in a row as developers step back construction. With limited

retail property completions, rent gains should be strong this year, advancing 4.2 percent to $21.18 per square foot.

This increase well exceeds the previous five-year average of 3.2 percent.

Retailer strategies change to match consumer needs. Convenience continues to emerge as a common theme in

the single-tenant net-leased retail sector as several types of retailers have adopted this concept to drive foot traffic

and sales. For example, drugstores have improved their product selection by including items historically purchased at

convenience stores and grocery stores. This strategy has also helped these retailers improve front-store sales and

hold a greater edge over online pharmacies. Additionally, dollar stores have added convenience to their affordable

product mix by offering instant-consumption items, such as grab-and-go sandwiches and beverage bars.

** Forecast


38

Cap rates shown above are representative of transactions that

closed in the past year ending in June. Actual yields will vary

by locations, tenant, lease terms and other considerations.

Locations sourced from CreditNtell for public companies and

company websites for private companies.

* For transactions closed in past year ending in June

Sources: CoStar Group, Inc.; CreditNtell; company sources

Brand Locations

Auto Parts

Bridgestone/Firestone 2,200

O'Reilly Auto Parts 5,019

AutoZone 6,003

Advance Auto Parts 5,183

Pep Boys 980

Dollar Stores

Dollar General 14,534

Dollar Tree/Family Dollar 14,835

General Retail

Walmart 11,718

Sherwin-Williams 4,620

AT&T 16,000

Verizon Wireless 2,330

Office Depot/Max 1,378

Convenience Stores

7-Eleven 8,707

Circle K 1,481

QuikTrip 762

Wawa 780

Pharmacies

CVS 10,091

Walgreens 8,100

Quick-Service Restaurants

Dairy Queen 6,400

Starbucks 27,339

McDonald's 37,241

Yum Brands 45,084

Burger King 24,707

Wendy's 6,634

Fast Casual

Chili's 1,674

Darden Restaurants 1,769

Red Lobster 705

Bloomin’ Brands 1,489

Applebee's 1,756

Ruby Tuesday 560


H&R BLOCK

39

Fed watchful as economic surge raises inflationary pressure. Strengthened hiring amid exceptionally low unemployment levels have boosted wage growth, placing upward

pressure on inflation. Amid this trend coupled with rising trade protectionism and tariffs, the Federal Reserve appears determined to head off inflation risk by continuing its

quarterly increases of the overnight rate. These actions are lifting short-term interest rates while the 10-year Treasury rate remain range bound near 3.0 percent. Should the 10-

year remain steadfast, Fed tightening could create an inverted yield curve in which short-term rates rise above long-term rates. Although this event has preceded every

recession of the past 50 years, many economists suggest such an inversion this year could be an exception to the rule. Because of distortions caused by regulatory changes

and quantitative easing, this inversion could be different. Nonetheless, the Fed’s stated path does raise recessionary risk levels because it could weigh on confidence levels and

restrain spending by consumers and businesses, thus slowing economic growth.

* Through July 20

** As of Aug. 17

Capital Markets

Lenders Pursue Deals as Capital Plentiful;

Caution Enforcing Underwriting

10-Year Treasury still “sticky” at 3 percent. After surging at the beginning of the year, the 10-year Treasury has been range bound near 3.0 percent. To create some headroom

for its escalation of short-term rates, the Fed has tried to exert upward pressure on long-term interest rates by unwinding its balance sheet. This quantitative tightening has had

little influence, particularly as foreign investors have enjoyed a yield premium relative to their native 10-year rates.

Potential rapid interest rate escalation a downside risk. Although capital remains plentiful, lending could tighten quickly for a short period if interest rates rise rapidly. As

experienced in late 2016 when the 10-year rose by more than 80 basis points in 60 days, and again at the beginning of 2018 when there was a 60-basis-point surge, market

liquidity could tighten if rates jump. Considering this has happened twice in the last two years, borrowers will likely benefit by taking a cautious approach with their lenders and

lock in financing quickly.

2018 Capital Markets Outlook

MARKETING TEAM

Source: © 2015 Experian

PROPERTY NAME

#

CREATED ON OCTOBER 9, 2018





40

DEMOGRAPHICS

1 Miles 3 Miles 5 Miles

POPULATION

2022 Projection 15,335 21,097 25,450

2017 Estimate 14,813 20,757 24,674

2010 Census 14,371 20,083 23,652

2000 Census 12,602 17,904 20,066

INCOME

Average $43,499 $43,490 $45,425

Median $31,676 $31,312 $32,368

Per Capita $9,708 $9,984 $10,584

HOUSEHOLDS

2022 Projection 3,471 4,955 6,071

2017 Estimate 3,306 4,754 5,733

2010 Census 3,238 4,638 5,535

2000 Census 2,959 4,316 4,890

HOUSING

2017 $110,450 $114,115 $123,104

EMPLOYMENT2017 Daytime Population

10,924 16,635 20,980

2017 Unemployment

14.16% 14.02% 13.82%

2017 Median Time Traveled

28 27 27

RACE & ETHNICITY

White 43.62% 45.17% 46.37%

Native American 0.06% 0.05% 0.05%

African American 0.85% 0.90% 1.21%

Asian/Pacific Islander

0.51% 0.63% 0.92%

www.MarcusMillichap.com

Juan Bustamante

Agent Candidate

Bakersfield Office

Tel: (661) 377-1866

Fax: (661) 377-1848

[email protected]


P R E S E N T E D B Y

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