Retail holdings are an investment favorite

November 9, 2011
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In just the last year, Peter Colvin and David DeMaagd have sold nine retail stores in the area. The nine total about 100,000 square feet, with a 30,000-square-foot Best Buy store in Norton Shores being the largest. The value of those nine sales totaled $100 million.

Colvin and DeMaagd are with Sperry Van Ness/Silveri Co., a commercial real estate firm headquartered on Cascade West Parkway SE. They were able to sell the buildings during the most dismal economy in the past 80 years to investors who wanted to avoid the nasty pitfall of a descending stock market and the pittance of a return that fixed-rate securities offer.

“People want a return on their money, more than the banks and the CDs and the stocks are offering. They don’t want volatility. A lot of people don’t want to be in the stock market, so they’re going for the best return on their money they can get, which is real estate that performs,” said Colvin, who is national director of single-tenant investments for Sperry Van Ness.

“So the key is, if you buy real estate, make sure you buy something that is leased to a tenant that is going to pay the rent and stay in business,” he added. “We work on the ones that are leased and we work on the strong credit deals only. That’s why we like the dollar stores, the drug stores, the automotive stores and the good-performing restaurants.”

When Colvin talks about investors, he isn’t only speaking about the traditional institutional type. Even though some of his buyers fall into that group, such as a pension fund he has worked with, some of their deals are made with small investment groups that have been formed by families and with individuals, such as an 88-year-old widow. This time, though, they recently represented the widow on a lease transaction instead of a sale.

The elderly woman lives in California and owns a building on 28th Street SE that had a Perkins Restaurant as the tenant, until Perkins filed for bankruptcy and was able to terminate the lease.

“Not only did she lose her retirement income, she also became responsible for the loan payment, taxes, insurance and utilities, which became a big hardship for her,” said Colvin.

So he and DeMaagd enlisted the firm’s property manager, Mark Bouman, and leasing expert Kevin Lipke to help. “We got 10 offers in 30 days, and Case Reimus from NAI brought in The Sleep Doctor for a long-term lease and a happy ending,” said Colvin, who called the transaction his most rewarding deal so far this year. “She has a great tenant again and her income is back in place. And the tenant is renovating the building.”

Applebee’s is a tenant in three of the buildings they sold. O’Reilly Auto Parts, the Macaroni Grill, Family Dollar, Dollar General and the previously mentioned Sleep Doctor and Best Buy were the others. The stores are in Standale, Wyoming, Jenison, Grandville, Norton Shores and Cascade Township.

The buildings housing the Applebee’s were sold last year, but the remaining six changed hands in the past few months. One of those deals closed last month. The buildings were fully leased when Colvin and DeMaagd carried out the sales. “We trade in real estate investments like that,” said Colvin.

Prime retail locations almost always sell at a higher cost-per-square-foot than, say, an industrial building. Colvin said a typical 5,000-square-foot Applebee’s will go on the market for $2 million and will be sold at that price.

“An industrial building that’s 50,000 square feet may only sell for $1 million,” said Colvin. He has been in the commercial business for over 25 years, has closed on more than 1,200 transactions worth more than $1 billion in sales volume, and worked in the industrial market until 2007. “We don’t go by the square footage in that leased retail stuff. We go by volume — the dollar volume.”

Colvin said retail is a hot market nationally because investors like brands that are nationally advertised and financially strong. “They like that they know the brands and can drive by the restaurant. A lot of these companies do well in a rough economy — like dollar-store sales increased almost 20 percent last year when a lot of things were going down,” he said.

Colvin admitted that if Wall Street-listed stocks had risen steadily the past year, they probably wouldn’t have rung up as many Main Street sales as they have.

“There wouldn’t be as much of a demand for strong-credit real estate if the stock market was growing and growing consistently. But that’s been ruined forever. Generally, people do not trust stocks anymore,” he said. At the same time, he said he is convinced the sales surge will continue. “Oh yeah, this is a strong future trend,” he said.

DeMaagd is a CPA and analyzes the financials of a potential deal. Colvin’s son, Christopher, is also part of the team.

“We put people’s money into safe real estate investments,” Colvin said. “That’s what we specialize in: safe, recession-resistant, strong-credit, real estate investments.”

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