Net lease investors targeting Wilmington

As commercial interest and demand continue growing throughout the region, investors are taking advantage of net leasing to yield bigger profits and land credit worthy retail partners.

Hill Rogers, principal broker with Wilmington-based Cameron Management Inc., said his firm has executed these types of leases in the past, adding that investors continue to search for similar opportunities in the market.

“It’s been very popular and active for the last 10 to 12 years,” Rogers said. “Any Walgreens or CVS is a net lease agreement.”

Rogers’ firm has developed two Walgreens in Wilmington using triple net lease agreements. One is located at College Road and Oleander Drive, across form the Trader Joe’s currently under construction, and the other is located at 17th Street and Medical Center Drive near New Hanover Regional Medical Center.

Many triple net leases are long-term leases, ranging between 20 and 30 year depending on the tenant.

In many instances, the developer or investor seeks out parcels of land or vacated buildings along intersections with high or growing traffic volumes.

Rogers said while the lessee and property owner will typically engage in a contract to construct whatever facility on the property, the lessor will agree to a set rent while assuming all taxes, insurance and maintenance expenses that arise from the property’s use.
 
“The developer will take on the risk,” Rogers said. “The tenant has the option to renew or walk away.”

Rogers said in many instances, because the location is so profitable, many chose to renew their leases unless the landowner owner has other plans for the property.

It’s not just a trend relative to greater Wilmington.

According to a recent report by The Boulder Group, a Northbrook, Ill.-based real estate investment firm that specializes in net leasing, the number of retail assets offered for sale nationally in the first quarter increased 19.6 percent compared with the fourth quarter of 2011, to 2,976. 

The report also highlighted demand growing throughout the South, ranging from large metros like Charlotte and Atlanta to smaller metros like Wilmington and Greenville.

Peter Pessetto, director of brokerage for Keller Williams Commercial in Raleigh, said his office has received increased interest for net leasing opportunities in Wilmington – so much interest that net leasing is becoming a big part of his business.

“I’ve got investors in California saying get us some net leases in North Carolina,” Pessetto said. “When you look at North Carolina as a whole, many investors are targeting Raleigh, Charlotte, Asheville and Wilmington.”

While vacant parcels for net lease developments might be scarce in Wilmington and New Hanover County, other opportunities are occurring in Pender and Brunswick counties.

Pessetto said while investors could net more than $75,000 year from such agreements, there are some stipulations in securing the right lessor. He said for starters, the company must have a high credit rating and be willing to address local zoning and building designs for each respective municipality.   

But it’s the area’s low tax structure and high growth reputation that are continuing to send investors flocking to the region, despite high unemployment and tanking property values.

“North Carolina is a business-friendly state, and investors see future growth in our area,” Pessetto said. “It’s a hot market right now … if investors with large cash flow are looking to invest in commercial real estate right now, they are looking into net leasing.”