Frequently Asked Questions

Retail Self-storage Mobile Home Parks

Retail

What is an Investment-Grade lease?

Investment-grade leases are leases to tenants that maintain a credit rating of BBB− or higher. This investment rating is given by the major rating agencies such as S&P's, Moody's, or Fitch. These ratings directly represent a company's ability to repay its obligations and remain solvent. BBB− represents a "good credit rating" according to the rating agencies. Typically, larger publicly traded, national companies maintain these stronger credit ratings.

Regional tenants and franchises do not report quarterly earnings in order for rating agencies to place a rating status. In most cases, it is recommended that a lease be corporate-backed (backed by the parent company and not franchisee).

What is classified as a Long-term lease?

Typically, "long-term" describes a fixed-length obligation in lease term at or beyond 10 years. Along with the initial lease period, there are usually lease options as a part of the fixed lease term. It is important to distinguish between the options and obligations. For example, if a newly executed lease is signed by XYZ corp for a 10 year initial term with (2) 5 year option periods, this does not make it a “20 year lease”.  The option periods are simply lease extensions giving the tenant the right to exercise if deemed fit. 

National corporate tenants tend to include contingencies within the language of the lease which must be sought after.  Find out rent terms and how long the tenant is obligated to pay. It makes all the difference when considering your risk, returns, ability to obtain financing, and your ultimate ability to resell the property for a profit.

What is a Net-Lease?

Double-Net ("NN") and Triple-Net (or "NNN") leases are leases whereby the tenant is responsible for all operating expenses, including taxes, insurance, the structure, and the roof. A pure NNN lease that will cover these costs throughout the term of the lease is often referred to as an "absolute NNN lease." Some leases are called "triple net" that do not include the expenses of the roof or structure of a building.

These types of leases are more accurately referred to as "modified NNN" or "double-net" ("NN") leases.

It is important to differentiate lease types when considering investment property. Many brokers refer to both pure triple-net and modified double-net leases as the same type of lease. There is a very big difference!

Roof and structure repairs can be very costly and may provide your tenant an early out for their lease obligations if the structure is not maintained properly. On the other hand, if you acquire a double-net property with appropriate warranties, you may be able to get a materially higher income than you would with an absolute triple-net.

What is a ground lease vs. fee simple?

Simply put, in a ground lease structure, the owner owns the rights to the land or “dirt” the property sits on and receives ground rents as compensation.  Initially, a tenant upon development will pay to have a building constructed and pay the owner of the lot for continued land rights.

In a fee simple structure, the investor owns the land and structure which the building sits on.  Initially, upon development, the tenant allowed a developer to perform a full build-to-suit construction for their establishment.  This means, supply the land, construct the building and deliver a final Certificate of Occupancy (CO). 

Both structures carry advantages and disadvantages depending what an investor is seeking.  For more information email info@marzocapitalgroup.com .

Does retail carry risk?

Like any investment, there is always some level of risk.  Our strategy when acquiring existing properties specifically seeks out centers which can be acquired for under replacement cost.  As investors, this puts positions us to offer competitive rental rates to new or existing tenants vs. high cost new construction being built.  If we are performing a build-to-suit development for a major retailer, the lease commitment has been signed prior to commencement of construction.  This then alleviates most risk from the equation. 

Single-Tenant

Marzo Capital Group leverages its knowledge and relationships with the most active national retailers in the country.  Our acquisitions team focuses primarily on infill pads with an objective to deliver ground lease-ready sites or to perform build to suit development for our retail client relationships.
Investment-grade, long-term net-leases typically range from 7-25 years and provide stability of income to investors.  The NNN property lessee is responsible for paying the insurance, taxes, and maintenance fees associated with that property (in addition to paying rent). The lease itself is guaranteed by some of the country's strongest corporations that are well-capitalized and better positioned to maintain their obligations despite any economic volatility.

In summary, double-net (NN) and triple-net (NNN) leases provide stability, predictability and simplicity for owners with the ability to enjoy the benefits of real estate ownership without major management maintenance. (tenants, toilets, trash, etc.)

Multi-Tenant

Like single-tenant, multi-tenant strip centers offer strong corporate national tenants along with investment diversification.  The driving principles behind our acquisitions are to acquire well located infill centers in markets showing strong demographic and value add potential.  Strategies vary from outparcel development, vacant space in need of redevelopment or dated assets in need of renovation and re-tenanting.

 

 

Self-storage

Why own Self-Storage?

  • Stable, Simple and Predictable cash flowing assets
  • Growing industry with high demand
  • Highest Return on Investment (ROI)
  • Lowest Default Rates of any product types: .24% vs. 4.5% in Multi-family
  • Low maintenance
  • Low overhead
  • No “Tenants, Toilets & Trash”
  • Non-cyclical, recession & inflation proof
  • Highly fragmented private owner ratio (5:1)
  • Garners sticky tenants (tenants more willing to renew leases YOY vs. Multi-family)
  • Easier to get financed by traditional lending sources
  • More favorable loan rates

Does Self-Storage carry risk?

Like any investment, there is always some level of risk.  Self-Storage carries some of the lowest risk in the real estate landscape.  Our strategy when acquiring existing facilities specifically seeks out properties that have inefficiencies and are in need of capital improvement.  Through our extensive knowledge, MCG is able to reposition a distressed facility and aggressively rebrand and redevelop the property bringing it up to institutional grade standards.   This then raises the net income derived from the asset giving it a higher resale value.

The self-storage industry has outperformed all other commercial real estate sectors over the last fifteen years with an average return of over 20 percent.  This $38 billion dollar industry is being fueled by the rise of apartment living leading to increased demand for space.  Today, 1 in 10 US households rent self storage units compared to 1 in 17 in 1999.  Unlike multifamily, this niche product type offers attractive, non-cyclical returns without the liability of tenants, toilets and trash. 

Development

Since the great recession demand for self-storage units have grown considerably despite limited new development.  New developments on average have absorbed approximately 600 facilities in 2018, compared to the average of 2,100 facilities per year from 2000 to 2009.  By purchasing well located sites in markets showing supply shortage and strong growth potential, development continues to be a profitable strategy. With in-house site selection and development, we are uniquely positioned to move quickly and take advantage of opportunities capable of delivering above-market returns.

Acquisitions

The self-storage landscape today is comprised of 54,000+ facilities, 80% of which are held by private owners of four facilities or less.  This creates a unique opportunity for value-add & redevelopment investors by purchasing distressed then upgrading the facility to institutional grade standards.  Marzo Capital Group is well positioned to acquire existing facilities and drive outsized returns through operational efficiencies and diligently deploy capital improvement plans.  Strategies vary from redeveloping distressed facilities, building conversion (big box retail, warehouses, etc.), lease up of vacant space through aggressive marketing, utility efficiency programs, rebranding, climate control additions, retail or special use space (if applicable), storage containers, movable modules, automation, RV & trailer spaces, truck rentals, moving supplies, etc.

 

 

Mobile Home Parks

Why own Mobile Home Parks?

  • Lower Cost Per Unit
  • Lower cost for repairs and maintenance
  • High Return on Investment (ROI)
  • Risk Diversification
  • High Demand, Low Supply
  • High Occupancy, Less Tenant Turnover
  • Non-Institutional, “Mom and Pop” Owners
  • Less Competition
  • Alternative to Multi-Family
  • Non-cyclical recession & inflation proof
  • Highly fragmented private owner ratio (8:1)
  • Garners sticky tenants (tenants more willing to renew leases YOY vs. Multi-family)
  • Easier to get financed by traditional lending sources
  • More favorable loan rates

Do Mobile Home Parks carry risk?

Like any investment, there is always some level of risk. Acquisition opportunities in the manufactured housing community sector remains highly fragmented.  By nature, MHPs carry many moving parts and require hands on maintenance.  Another constraint in the MHP sector are non-institutional investors attempting to acquire directly without experienced management to take advantage of market inefficiencies.  Although lucrative investments, MHPs need strict management and systems in place for optimum viability.

Affordable housing has become the hottest arena in the commercial real estate space due to high demand and short supply. The overdevelopment of class A multi-family communities have lead to a discrepancy in market rents, making MHPs great alternatives to the Multi-Family sector.  With over 20% of Americans living on $20,000 per year or less, demand has hit peak levels and will only continue to rise.  In addition, MHPs carry some of the lowest vacancy rates of any product type which offers great stability and diversification to any portfolio.  Marzo Capital Group is well positioned to acquire and stabilize distressed parks in excellent sub-markets offering affordable housing at a lower cost per unit.