I feel like I’m the broken record in this conversation. Same thing. Every time. In times of uncertainty, capital races towards quality. This is not at all surprising. You can set your watch to it.
We are living in uncertain times. It may be for 3 months. It may be for 3 years. Nobody knows and that’s why it’s uncertain.
Money will chase the shiniest penny - the prettiest girl at the ball.
In the CRE investment world, which assets are considered the shiniest pennies? Absolute NNN retail properties. There is no argument here.
The purchasing power of the investment dollar is relative to the market. What do I mean by that? Let’s dumb it down a bit and talk houses. If you buy a house for $2M in a market where all similar houses are trading at $2M, that’s a fair trade. Now, if the market has a downward adjustment and the house you purchased for $2M is now worth $1.6M most would feel like they just lost $400K, right?
Maybe yes, maybe no.
If you sell the home purchased for $2M at a price of $1.6M, you would feel like you lost $400k but that ignores the purchasing power of $1.6M at that time. In theory, that $1.6M should have the same purchasing power as $2M did in the prior market, unless you really mess up.
The point is that pricing and value are relative.
So now think of an uncertain investment marketplace (like today). Investors still need to place capital. Nobody wants their money sitting in a savings account earning 1.2% annually. That’s a joke. What is the best alternative for an investor comfortable with real estate?
NNN credit deals.
Back to the point above - buying a trophy NNN asset provides certainty of cash flow (hopefully). Nobody has a crystal ball as to where values will go but those that seek out and purchase the highest quality assets know that no matter where the market goes, their assets will always command the highest prices in the market, and therefore provide them with the highest purchasing power on the next leg of their transaction.
A frequent mistake I’ve witnessed over the years is investors focusing on their original purchase price rather than future potential, leading to missed opportunities for higher returns. I can tell you multiple stories of people holding out for "salvation" of their original basis and totally missing opportunities for 2, 3, 4x gains on their equity over the same time they waited for pricing recovery.
Dumb. Investment psychology deserves much deeper study - it’s genuinely fascinating.
You can lead a horse to water but you can’t make it drink.
Not all “safe” opportunities are created equally.
Caveat emptor.
Look at Carl’s Jr. Back up 6 months. To the untrained eye, Carl’s Jr. seemed to be a foundational fast food icon in Southern California. Not so fast. They are getting murdered now. Declining sales, franchisees asking for lease terminations and filing for bankruptcy. You can say the same for Del Taco. I expect that in the not-too-distant future we can add El Pollo Loco, Jack in the Box, and a few others to this list.
Carl’s is just the first shoe to drop. More are coming.
So how can an investor know what is and isn’t a safe investment? The answer is that they need to be armed with as much market information as possible.
Buying a Carl’s Jr. with a struggling franchisee can be a blessing or a curse. If the tenant is paying 40% above market, it’s a curse. If the tenant is paying 40% below market, it’s a blessing.
So how can you be sure which is which?
DealGround is how.
Knowing everything that is going on in a given market area is the only way to know for sure. Up to the day information is hard to obtain. DealGround provides that data feed.
Take a look at www.dealground.com and reach out for a personalized demo. If you are any of the following, I promise you that DealGround will help you do more deals and make more money.
Long story short, if you are in CRE, you owe it to yourself to check out DealGround. For a fraction of the price of one of the many services you currently pay for, DealGround can eliminate multiple subscriptions, save you money, and help you source more opportunities to make more money. That’s the DealGround advantage.
You want to know exactly which sites are tied up in situations like this before everyone else figures it out.
