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Page 4 — Retail Properties Quarterly — February 2021 www.crej.com Market Update Eliminate guesswork and trust the team with proven industry experience and reputation for exceptional client-centered approach. United Properties Denver has the skills, expertise and determination to create powerful results. We build connections. We make things happen. We help move your vision Over 15 years of unmatched retail development experience Well-known for tenacious client advocacy (720) 898-8866 | UPROPERTIES.COM MINNEAPOLIS DENVER AUSTIN forward. W hile real estate transac- tion volume fell across the board amid a global pan- demic, net-leased inven- tory occupied by retailers deemed essential continued to trade consistently, often at record low cap rates. In 2020, a flurry of retail bank- ruptcies and a soaring stock market resulted in investors flocking to net- leased tenants with strong balance sheets and demonstrable success in spite of restrictions put in place by state and local governments to counter the pandemic. Net-leased assets provided investors with a safe haven in a tumultuous and uncertain year and will continue to do so in 2021. n Demand for essential business tenants. Investors are now relying on essential retail tenants to carry them through down cycles like we have seen in the past year. Retailers such as 7-Eleven, Dol- lar General, Walgreens and similar grocery, convenience and pharmacy retail- ers are examples of highly sought- after tenants dur- ing the pandemic. Even during what has been a dev- astating year for many businesses across the state and country, well-located net- leased properties still are selling at aggressive prices. A recent example is a 7-Eleven that our team sold in Denver, located at West Seventh Avenue and Kala- math Street, which ended up selling for $3.03 million at a 4.52% cap rate to an all-cash, 1031 exchange buyer based in California. Not only are these investment properties in high demand, but also many of these national retail- ers are expanding their footprint. According to a GlobeSt.com article, 7-Eleven is planning 6,000 new openings, Dollar General is planning 1,000 new stores and Dollar Tree is expecting to open 500 new stores. Other investors continue to seek fast-food and coffee investments with tenants that include Starbucks, Burger King, Wendy’s, Taco Bell and Chick-fil-A. As indoor dining came to a halt, these operators tapped into their drive-thru business to become profitable again. As a result, we now are seeing more restau- rant operators rushing to change their footprint to include drive-thru windows. Companies that tradition- ally focused on in-store dining, like Chipotle, are starting to experiment with drive-thru locations. n Interest rates. Just as “pandemic- proof” retail bolstered net-leased transactions during this time, record low interest rates and lenders who remained aggressive helped private and institutional investors alike as they pushed deals across the finish line. However, as 2021 moves along we have seen rising interest rates. The 10-year Treasury, at 0.52% in late August, is now at 1.1% as of late January. This includes a 20 basis- point augment in the last two weeks alone. While this seems worrisome for some investors, John Chang, the director of research at Marcus & Millichap, points out that investors should keep this rise in perspective. “I have to remind everyone that a year ago, before the onset of COVID, the 10-year Treasury was in the 1.8% range,” Chang said. “So rates are still quite low by comparison.” Net-lease cap rates often directly correlate with interest rate move- ment, so it will be interesting to see if the market shifts with rising rates in the coming months. If money remains relatively cheap, we should not see too drastic of a shift in transaction prices and volume. n Potential challenges ahead for the net-lease sector. Despite a solid showing during the downturn, cer- tain retailers and net-leased asset types have struggled. Sit-down restaurant concepts have been hit extremely hard. This goes for both smaller local concepts and big national brands. Those who are not closing their doors are making big changes to Net-leased properties remain fluid amid uncertainty James Rassenfoss Senior associate, Net Leased Properties Group, Marcus & Millichap, james. rassenfoss@ marcusmillichap. com Drew Isaac Senior vice president investments, National Retail Group, Marcus & Millichap, drew.isaac@ marcusmillichap. com A 7-Eleven located at West Seventh Avenue and Kalamath Street in Denver sold for $3.03 million at a 4.52% cap rate to an all-cash, 1031 exchange buyer based in California. Please see Rassenfoss, Page 21