How the Recession Benefited Net Lease

January 7, 2016
By Carrie Rossenfeld | San Diego

david trakman the niki group 640SAN DIEGO—A cadre of qualified, smart, honest people have entered the net-lease field after being downsized from larger property-development firms, which helped the industry by infusing it with talent, the Niki Group’s managing partner David Trakman tells The firm, which has been in business for 16 years, is a boutique real estate investment company run by Trakman and founder and CEO Peter Zarcades, which purchases single-tenant triple-net properties where the tenants pay mostly all of the expenses associated with the property. We spoke with Trakman exclusively about the concept of a boutique net-lease firm and his take on this sector of the industry. How did the concept of a boutique net-lease firm emerge for your company?

Trakman: It emerged because we started as a very small group with a limited amount of capital. The initial properties that were bought in the late ’70s before I joined the group, were bought to keep as long-term investments. The easiest assets to sell are those you intended to keep long term, so that’s where the boutique aspect came in. As the company grew organically, we were able to widen our opportunities and build a portfolio. we still maintain that boutique-type spirit within the company, and we have repeat buyers as well as people simply looking to buy a good piece of real estate that’s reliable. What types of investors do you target, and how do you go about targeting them?

Trakman: We do not target other than family and friends. It is primarily our money. We very seldom solicit for investments. Of course, we have to grow in order to stay relevant, so we grow organically. If we sell $30 million of properties in a year, then typically the cash that will realize from those sales will buy $40 million worth of properties, and the family and friends who participate with us can contribute and perhaps we can buy $50 million worth of properties. We grow property by property, and it’s small growth, but over a five-year period it adds up. Do you see boutique net-lease firms becoming a trend?

Trakman: It probably won’t become more common; we’re unique in that we spend a lot of money in pursuit costs. Bigger companies’ employees have to answer to their manager and justify why they spent money on a particular deal. But we are a group of about 10, and we don’t question why we spent money on a deal that didn’t work out. This is unique, and I don’t see many companies being able to operate successfully considering the dollar values of the deals that we do. What does your firm’s success say about the direction of the net-lease sector of the industry?

Trakman: At least in the net-lease properties we’re dealing with—blue-collar-income industries like fast-food restaurants and auto stores—in times of recession, those blue-collar-income stores usually do just fine. With the advent of non-publicly traded REITs and REITs moving into retail, there will be a hiccup. Companies like ARC are buying up big-box retail on sale-leasebacks, and time will tell the effect. We have seen some failures in single-tenant triple-net lease, like Circuit City, Mervyn’s and Levitz, and there’s another round coming that could be worse. We haven’t gotten involved in bigger-box retail on the tenant side; we don’t have that kind of capital.

Net-lease investments have benefitted from the last recession. A lot of qualified, smart, honest people have joined the brokerage ranks. You had a lot of property-development companies with staffs of 40 to 50 people who cut back to 10 or 15 people. They went to join firms like Marcus & Millichap and Colliers, and a lot of new groups started with those qualified people working for investment real estate. This helped the industry and brought some real quality people to it.

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