Amid the rush of 1,030 stockbrokers to secure assets through July 15, sales of net rentals for individual renters rose during the month.
"That July 15th deadline really boosted sales," said Chris Pappas, associate director of the Net Lease Division of Marcus & Millichap.
After an extension by the CARES Act, 1,031 investors had to find out what they were buying by July 15. "July was an important moment for the net rental market for single renters as all of the 1031 market capital subject to COVID renewals was either placed in a completed transaction or is tied to the completion of a small number of assets under 1031 identification rules," according to the NNN Market Intelligence Report.
Overall, total sales with single tenants rose from 271 in June to 320 in July, which, according to Pappas' NNN Market Intelligence Report for July 2020, corresponds to an increase of 18% compared to the previous month. This is a dramatic jump from the total of 162 transactions in May. Total revenue increased from $ 719 million to $ 989 million, an increase of 38%.
"We saw an increase in transactions, and I definitely think this was triggered by the expiry of the July 15, 1031 identification period," says Pappas. "The 18% increase in transactions was reasonable as people need to complete these transactions to avoid their tax liability."
Stores providing essential services dominated in July. "We now know what the market perceives as a safe investment," says Pappas. "It's mainly those drug stores, fast-food restaurants, and the dollar stores."
As in previous months, investors continued to flock to quick service restaurants (QSRs), dollar stores, and pharmacies, which continued to dominate. QSRs rose 3% and claimed a market share of 28%. Dollar stores fell two percent while claiming a 21 percent market share; and pharmacy transactions remained unchanged with a market share of 17%.
Pharmacies also led the way in terms of total sales, accounting for 28 percent of the dollar volume. QSRs came in second with 18 percent of the volume.
"The preferences of the tenants were really very, very stable," says Pappas.
While dollar investments in the south declined 2% to 38% from total, the region continued to attract more than a third of the net rental dollars spent on individual renters. Texas and Oklahoma saw the largest increase in dollar volume from 5% the previous month to 9% of market share. In the Midwest, dollar investments fell from 5% to 14% market share.
"The regions that have increased the most and the regions that have decreased the most did not have any significant changes in the dollar volume distribution," says Pappas. “I think the regional distribution of the money is also more consistent. From these numbers you can see that the preferences regarding the investment location have largely remained the same. "
But now that July 15th is over, it's fair to ask what happens next. With investors only having to figure out what they were buying through July, the August numbers could also be strong by the time they close their deals.
"You could see an increase," says Pappas. “I would think it could increase or it will be stable. I assume that it won't be a big jump in sales. "