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Posted 20 Jul 15 By: No comments yet

Real estate buyers eye the Duke City again

It took one phone call for Alfredo Barrenechea of Absolute Investment Realty to sell a property on Alameda Boulevard with a Burger King on it. He also listed a property featuring a national pizza chain and got 12 quick offers. That one sold way above the asking price too.

While Albuquerque’s office vacancy rate remains relatively high and some industrial and retail sites sit empty — there’s money being made in the city’s real estate investment market. Investment transactions are sometimes an unseen part of the real estate industry because investment properties are often listed off-market.

Business First spoke to nine brokers in the investment sales industry and each one came back with a similar and resounding assessment — Albuquerque is back on the radar for real estate buyers. The buyers represent Wall Street, pension funds, real estate investment trusts — or REITs — and individuals simply sitting on cash. Investment sales are hot because while Albuquerque’s economic recovery is still lagging, investors see a brighter future and want to get in while the city’s prices are still affordable. The increased activity also is seen as a sign of good things to come in job creation and company recruitment.

“We get 10 to 12 offers on every deal,” Barrenechea said. “The last three properties I’ve sold have sold above asking price, because people are getting into bidding wars.”

Rich Diller, a director at Investment Property Advisors, a branch of NAI Maestas & Ward, has been in real estate for 33 years and is seeing the same trend. His team marketed a property that was home to a national burger chain. They got three full-priced offers on the first day.

And the investment team at Sperry Van Ness/Walt Arnold Commercial Brokerage is selling a 12-building portfolio worth $18 million. Six of those buildings were put on the market. One closed and the other five are under contract — each one between 95 and 100 percent of asking price.

“We’ve had to stagger putting all 12 buildings on the market so [the owner] can handle all the contracts we’ve done,” said SVN’s Joel White. “They can’t keep up.”

Why Albuquerque?

While activity has certainly increased in recent months, this isn’t the first time investors have looked at Albuquerque. Prior to the recession, capital flooded the real estate market and the Duke City saw its fair share of investment deals. But when the recession hit, investment sales dried up fast.

It’s no secret that it’s taken the Duke City more time to regain its economic foot hold. But investors see the city’s economy as one that will inevitably improve.

“Investors are saying, ‘I’m going to take a gamble and buy something in Albuquerque and get in while the getting is good,’” said Patti Peixotto, a veteran office broker and investment specialist at SVN.

After quite some time on the market, the SVN investment team sold the massive 348,000-square-foot former Presbyterian Healthcare Services four-building administration office complex near the Sunport to a California-based investment group in April. It was the group’s first investment in the Albuquerque market.

Gregg Herbert, a principal at Emeryville, California-based Orton Development and part of the investment team, said his team did it, in part, because they liked Albuquerque’s welcoming business culture and convenient direct flights to and from Los Angeles.

Herbert and his team have now repositioned the property and put it on the market for $10.96 million. But, a notable difference is that a user can now buy individual buildings, too. Selling the buildings will be big for not only the Albuquerque office market but for Orton Development — the same property was on the market for less than $5 million in 2013.

Investors have flooded prime coastal markets, because those real estate investments have the potential to deliver more money than the stock market and bonds. Even secondary markets like Phoenix and Denver have seen their real estate properties eaten up by investors.

While investment risks might be lower in big markets like Los Angeles or San Francisco — there’s more real estate to chose from in Albuquerque, a tertiary market.

“There’s so much capital on the street chasing deals that the competition forces them to come to Albuquerque,” said SVN’s Hunter Greene.

Retail roaring

Perhaps the hottest investment opportunity in Albuquerque is a retail, triple-net, single-tenant lease with a national tenant. With triple-nets, the investor owns the property but the tenant pays for its utilities and building maintenance. Examples include national restaurant chains, mattress stores and high-credit, long-term retailers like Walmart or Walgreens.

“REITs are hungry for single-tenant, triple-net leases,” said Michael Reneau of Western States Retail & Investment. “We’re seeing more buyers looking for those types of leases, so the price is going up and they’re buying it at a premium.”

Non-national credit tenants, such as a mom-and-pop restaurant, doctor’s office or industrial concept, may not be as popular, but certain investors will still put their money down.

“If it’s a stabilized asset, there will be investors,” said Jake Mechenbier, an investment advisor at Maestas & Ward. “But it all depends on the type of product and the tenants there.”

Office buildings might be considered more on the horizon in the investment market. In general, individual investors shy away from office properties because they don’t want to deal with the management. Plus there are the headaches that go along with bills, insurance and multiple leases. The investment in office will likely remain in a hold and wait pattern if Albuquerque’s overall vacancy rate hovers at 21 percent.

There are notable exceptions, like the former Presbyterian Healthcare Services complex, now named the SunPort Corporate Center.

Concerning future office deals, Diller said out-of-state investors keep asking about jobs. “[Investors are] hesitant about the fact that we haven’t had a lot of job growth. They ask, ‘Why aren’t you growing and why is there so much dependency on government employment?’”

Investments help local economy

Brokers said investment activity can help Albuquerque’s economy. When investors buy dilapidated shopping centers, they usually spend money to spruce them up. Jobs are created to re-facade buildings, repave parking lots, install new signs and plant new landscaping.

A new look means an increase in rent or the ability to attract more tenants, which then means more retail jobs. What remains to be seen is whether these investments will spur new construction activity, which local economists say is the true sign of Albuquerque’s recovery.

Some Investment properties currently on the market

Carl's Jr.

Location: 3811 Ellison Dr. NW
List price:$2.2 million
On the market by: Investment Property Advisors, a branch of NAI Maestas & Ward
The buy: This triple-net lease property has a 12-year lease with the operator.

By:  Stephanie Guzman, Reporter-Albuquerque Business First

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