STAG Makes Second Move

November 16, 2007
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HOLLAND — A somewhat unique real estate investment firm from New England recently bought an industrial building with just under 200,000 square feet of fully leased space in Holland.

STAG Capital Partners LLC of Boston purchased the building at

414 E. 40th St.
from Optera, the structure’s only tenant that will continue to operate there. STAG is an acronym for Single Tenant Acquisition Group, and that name reflects the type of property the multi-million dollar private equity group has dedicated itself to buying.

“What they are doing is looking for opportunities throughout the nation through either sales-leaseback or investment sales where there is a single tenant in a larger facility that they can purchase based on the cash flow of the property and based on the credit of its tenants,” said Chad Burton, an investment specialist with Grubb & Ellis|Paramount Commerce, the firm that represented STAG in the deal that closed recently.

“They are looking for stable cash flow and a stable market. That is typically what they find in West Michigan. You can read the newspapers and you may think that things are falling apart, but relative to the rest of the nation, we’re a pretty diverse market. And overall, when they come here to view the market, they see stability,” said Colin Kraay, also an investment specialist with GE|PC.

Although the purchase price of the transaction wasn’t made public, STAG invests from a minimum of $4 million to a maximum of $50 million in properties. Barton said the firm’s price for the

40th Street
facility fell in the $4 million to $10 million range.

“That’s their sweet spot. What we’ve found is, to attract investors here from outside markets the investment really does have to be above that $4-million mark,” he said.

This recent purchase was the second one STAG has made in Holland this year. GE|PC also represented STAG when it bought an industrial building at 900 Brooks, a 310,000-square-foot structure that is also occupied by a single tenant and practically around the corner from the

40th Street
facility.

Virtú Investments of San Francisco recently bought four industrial buildings from First Properties, and now with STAG’s second purchase of a manufacturing facility in Holland, Barton said interest remains high for commercial properties in the region — especially for buildings that are fully leased.

“They are very impressed with West Michigan and what they perceive to be the vibrancy of the area when they come into it and are willing to invest their money here,” he said.

“We haven’t seen real estate values fall off the table,” added Kraay. “In West Michigan, from a residential standpoint, we’ve lost value, but not really to the degree of what they’ve lost in California and Las Vegas. Here in West Michigan, we’re just low in debt, and that’s what they’re looking for because they’re cash-flow driven.”

Ben Butcher and Charlie Hipwood started STAG Capital Partners in 2003, and the firm almost exclusively focuses on third-party transactions and corporate sale-leasebacks. STAG also has a European division with offices in London, Amsterdam and Munich.

STAG is a bit distinctive from other investment firms in the way it looks at deals. Barton said the equity group searches for properties that allow it to drive the cap rate up, such as a building that has some deferred maintenance or a shorter lease term.

“That’s not going to be typical to most investment buyers,” he said

But being able to drive the cap rate up usually results in a higher yield for an investment.

“The primary focus that we’ve seen the last two years is that private equity groups that are looking for a good property with new construction, a credit tenant and a longer-term lease, which is going to drive the cap rate down,” said Barton. “So it’s a different dynamic that we’re seeing from a group like STAG that makes deals possible.”     

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