DST categorization allowed Inland to sell this grocery property and keep the rest of the real estate.
Acquiring and disposing of shopping centers became more complicated with changes in business caused by COVID-19. Traffic and sales were at record levels in supermarkets, drug stores, and dollar stores. But clothing, general merchandise, and sporting goods stores were closed. Those tenants weren’t paying their rents, so who’d want to be their landlords?
Yet owners of large real estate portfolios have been able to take advantage of selling in-demand portions of their centers thanks to the Delaware Statutory Trust, or DST, designation.
This month, Inland Private Capital Corporation, a significant owner of commercial properties including shopping centers, sold a 70,000-sq.-ft. property occupied by Pick ‘n Save in Mt. Pleasant, Wis., for $17.8 million. The sale price was 11% more than Inland’s investors had paid for it and the transaction returned approximately 67% of their original capital investment. Inland had the creation of the DST to thank for it.
As part of a creative asset management strategy, Mt. Pleasant Retail Venture DST, which also has Texas Roadhouse, Jersey Mike’s and U.S. Cellular as tenants, was able to sell the Pick ‘N Save property--a busy site during the pandemic--because it was on a separate parcel.
“QSR lots and out-parcels were selling at pretty aggressive cap rates prior to the pandemic, but we’ve seen a shift towards necessity-based retail in 2020. In this case, the DST was able to sell the grocery store and retain ownership of the remaining real estate,” said Rahul Sehgal, chief investment officer of IPC.
The Pick ‘n Save property was one of three contiguous parcels offered in the Mt. Pleasant Retail Venture DST program. The other two parcels, which are 100% occupied by six tenants, were not part of the sale.
“Our primary strategy is still to sell the entire property, but in this business environment, with such cap rate repression, we want to capitalize on opportunities for our investors--such as in this case where a buyer was just looking to acquire a grocery store,” Sehgal said. “We were able to pay off the entire loan and our strategy is to seek a buyer or buyers for the remaining parcels.”