Real estate analyst: ‘Investors have found Northwest Arkansas’

Two coastal institutional investors completed separate acquisitions in Benton County worth $ 66.2 million in just a few days in early October.

Institutional investors are usually various companies or organizations, such as hedge funds or mutual funds, that invest money on behalf of others, rather than private investors using their own money.

In an apartment building, California-based Canyon View Capital paid $ 25.6 million to purchase three properties in downtown Bentonville. Newell Development’s Bentonville developer Jake Newell built all three from 2017-2020 and sold them in 85 units with a combined occupancy of 97%.

Newell described the purchase price of around $ 301,000 per unit as a “record” for the region.

As part of an office deal, New York-based Global Net Lease (GNL), a public real estate investment trust (REIT) listed on the New York Stock Exchange, paid $ 40.6 million for a 90,334-square-foot office building in the Southeast J Street in Bentonville that Walmart rents. The seller was a limited liability company run by longtime Bentonville real estate manager and entrepreneur Ramsay Ball. The three-story building opened last year.

“When national groups come into our market and see the potential and invest here, that confirms the market,” said Ball. “Something [institutional investors] we were looking for them a few years ago [viewed this] as a tertiary market. We struggled to crack that. It is lasting proof of the attractiveness of the market. “

These acquisitions show that the commercial real estate market in northwest Arkansas is maturing and attracting attention from institutional investors. Nonetheless, it is questionable among various executives in the commercial real estate industry whether they are a pioneer.

“I believe that for the most part, and in most sectors, the institutional money has not shown up [in Northwest Arkansas] said Steve Lane, general manager of Colliers Arkansas in Rogers. The Little Rock-based company is the largest commercial real estate company in Arkansas with more than 18 million square feet of rented and managed commercial space.

“Our experience from talking to many larger investment houses is that they enjoy doing business in large markets. Markets in which you can build a portfolio. “

Clinton Bennett, a northwest Arkansas commercial real estate agent that owns Bennett Commercial Real Estate in Rogers, said he still views the area as a tertiary market. Still, the definition of a tertiary market is subjective, and Bennett believes investors are warming to the idea of ​​putting more of their money in northwest Arkansas.

“I think we are seeing investment from groups that traditionally would not have focused on tertiary markets,” he said. “In the past, we often heard, ‘We like these assets, but your market just isn’t big enough.’ It seems like they are now familiar with the size and evolution of our market. Maybe the process is the same, but the demand has increased significantly.

“Because of Crystal Bridges, the Walton investments, the Northwest Arkansas Council, the University of Arkansas, the quality of life and the investments – I think we met a whole different level of investors.”

According to the US census, the metro in northwest Arkansas is just outside the 100 largest regions in the country with around 550,000 inhabitants (No. 105). Still, the population has grown by almost 25% since 2010, one of the fastest growing regions in the country.

BY NUMBERS
Paul Hendershot, an analyst with commercial real estate data and analytics firm CoStar Group, said the Northwest Arkansas market is seeing an increase in institutional buyers.

“I would say it’s higher [in 2021]but it’s hard to pinpoint as a deal can have an oversized impact on the percentage, ”he said.

CoStar data shows institutional buyers represented 25% of the sales volume in the Northwest Arkansas office market, from $ 166.1 million in 2021 to present day.

Institutional activity this year is up from 4% in 2020, 19% in 2019 and 2% in 2018 and – as Hendershot stated – is almost entirely due to the Global Net Lease acquisition in Bentonville of 40, $ 6 million attributed. According to CoStar, this deal is the only institutional purchase in northwest Arkansas that dwarfed $ 1 million this year.

Hendershot says many overseas and institutional investors in northwest Arkansas are looking for cheaper assets and higher returns that many primary and secondary markets cannot. The office market capitalization rate – a measure of real estate valuation of a property’s ROI – of 9% is above the national average of 6.9%

The total sales volume in the Northwest Arkansas office market is also increasing. It’s at an all-time high this year. The only other year in which office revenue exceeded $ 150 million was in 2016 ($ 156.8 million).

“If you look at the data, investors have found northwest Arkansas,” said Hendershot. “It’s a dynamic market with solid economic foundations and a stable tenant base. That increases the engagement with national investors. “

This year, Northwest Arkansas also saw a significant increase in multi-family sales volume to nearly $ 290 million year-to-date. The price per unit has also hit an all-time high of $ 105,502 per unit.

In terms of buyer type, according to Hendershot, 17% are institutional, 15% private equity and 68% private. Private equity refers to real estate funds aimed at high net worth individuals who raise equity to buy real estate. Private refers to companies whose control is private in nature and whose business is primarily focused on operating, developing, or investing in commercial real estate.

“I think everyone likes apartment buildings right now,” Lane said. “She [investors] are all on the hunt for returns. Cap rates are getting so low in the major metropolitan areas and we’re starting to appear on the radar. “

Lane said there is no shortage of buyers in northwest Arkansas, no matter who they are or where they are from.

“We are short of products,” he said. “You pull up CoStar at one point and see what’s for sale and there’s not much in that market. There are many development opportunities. We need more square meters on the floor. “

INVESTOR INSIGHT
Jason Slear leads the acquisitions group for Global Net Lease, which has a market capitalization of approximately $ 1.59 billion and a diversified portfolio of more than 300 properties in 12 countries worldwide.

Slear said GNL’s acquisition of Bentonville was the company’s first in Arkansas. Because of the tenant and the location, it was an “interesting opportunity” for GNL.

“One of the things we look for when buying assets is the creditworthiness of the renter, and Walmart’s creditworthiness is as good as it gets right now,” he said. “From an investment point of view, it met all the criteria – rental period, tenant loan and rent increases.”

Walmart has seven years remaining on the lease.

Would GNL have been as interested in Northwest Arkansas if the tenant of the building were a company other than Walmart?

“I’m a keen mountain biker, so every property in Bentonville is worth gold to me,” joked Slear. “If it was a different tenant, same credit, different name, same market, I think we would have done the same. [Northwest Arkansas] explodes. We did the research and you can’t read about the whole area. It’s a good marketplace and it’s expanding. This is the place where you want to be as a long-term real estate investor. “