Commercial Real Estate Transaction Alert

SRS Real Estate Partners Capital Markets has completed the $6.15 million ground lease (land ownership) sale of a 5,000-square-foot Chick-fil-A property located at 27960 Clinton Keith Road in Murrieta, Calif. The new construction property recently opened for business in March this year and has a 15-year ground lease in place.

The transaction marks two sales records. First, at 3.9%, it is the lowest cap rate for a Chick-fil-A property sold this year nationwide. Second, the sale is the lowest cap rate this year for all Quick Service Restaurant (QSR) sales in Southern California with annual rent above $200,000.

SRS Capital Markets First Vice President Winston Guest and Managing Principals Matthew Mousavi and Patrick Luther represented the seller and developer of the property, Newport Beach, CA-based Sage Investco, as well as the all-cash buyer, a private family trust from California.

The Chick-fil-A property sale is part of a break-up strategy valued in excess of $20 million for the class A pads at The Vineyard Shopping Center, a 26.3-acre retail project anchored by Costco Wholesale and ALDI near Interstate 15. Other parcels being sold by SRS include Chase Bank, Chipotle and Verizon Wireless, Ono Hawaiian BBQ, and Ramona Tires.

“Despite current market conditions, we are seeing specific segments of the buyer pool come forward seeking high-quality real estate and certain credits, as was the case here with this Chick-fil-A sale that was acquired by a repeat non-1031 client for a long-term hold,” said Mousavi. “Our SRS team is pleased to complete this record-breaking sale for both parties and we look forward to the completion and sale of the remaining parcels.”

“High profile retail developments like this in Southern California can take years to get to this point and are scarcer as markets saturate and become further developed,” added Guest. “The remaining parcels for sale adjacent to this Chick-fil-A represent some of the best real estate available, and we expect the demand for those to increase as a result of this record-breaking sale.”

Situated on 2.09 acres, the property is strategically positioned within an expanding retail corridor with numerous plans for additional development. Nearby development projects include a 522 home single-family residential project in Murrieta Hills; a 210-unit apartment complex near Interstate 15; and a commercial and retail center, among others.

According to Technomic Ignite, since 2018 Chick-fil-A has doubled its total sales volume. Last year the chain generated $21.58 billion in sales which is a 14.7% increase over the previous year’s $18.81 billion and over 43% over 2021’s $15 billion. This brand has also continued to gain market share over its biggest competitors in the Quick Service Restaurant (QSR) chicken sandwich category – Popeyes and KFC. Further, Chick-fil-A released its latest Franchisee Disclosure last month which showed that the average unit volume (AUV) for non-mall locations in 2023 reached a record $9.3 million, an 8.1% increase over the previous record of $8.67 million in 2022.

Over the past 12 months, SRS has sold Chick-fil-A assets in Arizona, California, Texas, Michigan, Florida, Kansas, New Jersey and Georgia, and has locations on the market in California, Florida, Texas, Maryland, Arkansas, on the market.

Year to date, SRS Capital Markets has completed approximately $840 million in deal volume comprised of over 200 transactions in 34 states. SRS currently has in excess of 698 properties actively on the market with a market value surpassing $3.7 billion.

Deal follows value-add strategy with brokerage assisting ​ with upgrades, repositioning in strong Inland Empire market

DAUM Commercial Real Estate Services, a leading provider of commercial real estate services including brokerage, tenant representation, consulting, leasing, sales, and property management, has completed the sale of a 49,561 square foot industrial building in Corona, Calif. The total consideration for sale of the building was $15.99 million.

“The sale of this property was the culmination of a yearlong project with our client to renovate and reposition a 1980’s vintage industrial property,” said Charles Johnson, SIOR, Executive Vice President and Principal at DAUM Commercial. “The transaction demonstrates that even in a challenging market, properties that cater to the masses by way of efficient loading, minimal office, and excellent location, will attract buyers and lenders willing to finance the purchase.”

The property at 1141 California Ave. in Corona, Riverside County, was built in 1988. In 2023, the asset was purchased by PPVS Properties LLC. With the assistance of their Daum Commercial team, the company worked to renovate the property and reposition the site for possible industrial lease or sale.

The free-standing industrial building of over 49,000 square feet sits on a more than 2.5-acre site with ample space for employees, customers, and commercial truck parking. The warehouse building consists of cross-dock loading with four grade level doors and six dock high doors. The property has a fenced-in yard area, an interior warehouse clearance of 24 feet, and a 2,169 square foot office space. The warehouse, office, yard, and loading areas were all fully renovated to a turnkey, move-in position.

With close access to the I-15 Freeway, Ontario International Airport, and the Port of Long Beach, Riverside County is the 10th largest county in the U.S. with a gross domestic product of $115.4 billion as of 2021. These strategic advantages have bolstered the region’s industrial real estate market amid the recent uncertainty in the national economy.

According to DAUM’s Q1 2024 Market Report, Southern California’s Eastern Inland Empire is currently experiencing direct vacancy rates of 5.2% and an overall vacancy of 7.6% driven primarily by an increase in available sublet space. New deliveries of industrial space accounted for 1.6 million square feet with another 5.5 million under construction. Asking rents fell in Q1 to $1.21 per square foot. High interest rates have tempered overall sales with volume in Q1 down 27.9% compared to Q4 2023 with a median per square foot price of $235.89.

Commercial Edge, a real estate data provider, noted that in-place rents increased in February by 12.7% year-over-year across the entire Inland Empire leading the entire country. Between 2021 and Q1 2024 rents in this market have grown by over 60%.

The DAUM Commercial team of Johnson, Joseph Harmon, SIOR; and Noah Samarin, EVP and Principal, represented the seller. Clyde Stauff, SIOR, Jace Gan, and Jackson Marlow of Colliers International’s Orange County represented the buyer, who will use the property to expand their existing flooring business.

Third-party logistics (3PL) providers leased the most big-box warehouse space in the Inland Empire (IE), accounting for 58.6% of all transactions, the highest of any market in a new report from CBRE.

“The themes of rightsizing and streamlining supply chains, efficiency, flexibility and value stand out in this environment,” said Ian Britton, senior managing director at CBRE. “Companies seem more willing to outsource and utilize 3PL providers to avoid hiring their labor force, expensive set-up costs and capital investment in material handling, technology and automation.”

The IE continues to be one of the most in-demand big-box industrial markets, with leasing surpassing 30 million sq. ft. for four consecutive years. This trend is expected to continue throughout the year as occupiers aim to strengthen their storage and distribution capabilities.

“At the end of the day, it is about reducing delivery times to customers by using a 3PL network of strategic locations to access Southern California’s 24 million people as soon as possible,” Mr. Britton said.

More space became available in IE due to completed construction and tenant move-outs, increasing the overall vacancy rate to 3.7% in 2023. This vacancy rate is still relatively low compared to other cities, ranking fourth lowest in this report behind Mexico City, Los Angeles County and Nashville.

“Most agree that long-term fundamentals look solid, but many IE tenants have available capacity in their warehouses as demand levels have normalized from the pandemic-induced surge,” added Mr. Britton. 

Nationally, industrial construction activity peaked in 2023, with a record 413 million sq. ft. delivered to the market, causing a doubling of the vacancy rate to 6.6%. However, construction in progress dropped to 208.4 million sq. ft. by year end, half of the previous year’s total.

Retailers and wholesalers dethroned 3PL providers across North America taking 36% of all transactions. In addition to retailers & wholesalers, automobiles, tires & parts and building materials & construction also saw an increase in share of leasing activity, which overall fell 15.8% in 2023.

CBRE forecasts a 5% increase in big-box leasing volume in 2024 as current market conditions are favorable to tenants. This indicates a potential rebound in demand, as the market strives to catch up with the robust deliveries of newly constructed industrial spaces.

CBRE analyzed “big-box” warehouses of 200,000 sq. ft. and larger because warehouses of that size are crucial for extensive national and international product distribution. Encompassing the United States, Mexico and Canada, the big-box report found that industrial facilities had higher taking rents than in years past. Rent growth remained robust at 15.9%, but down from 25.1% in 2022.

Of the leasing activity that took place, demand was driven primarily by a desire to boost supply chain resilience, increase access to growing population centers, modernize space to accommodate increased automation and support continued e-commerce growth.

To read the full report, click here.