With a career spanning over 25 years, Jonathan Hipp is recognized as one of the leading providers of net lease investment advisory services in the country. He joined Avison Young in 2020 as a Principal, member of the U.S. Capital Markets Executive Committee, and leader of the national Net Lease Group.
Based in the firm’s Washington, DC office, Hipp has expanded and solidified Avison Young’s net lease market position, and today leads a team of senior advisors across the country who specialize in the sale of retail, office, and industrial net lease assets, sale-leasebacks, 1031 exchanges, and tax structured zero-cashflow transactions. Envisioning a solid year for net lease during the 2020 depths of the pandemic, Hipp collaborated with his fellow partners and turned in a market-leading year, most notably closing two structured credit tenant net-lease properties totaling more than $570 million and representing 1.4 million square feet (msf). Combined, the deals are noted as one of the largest in the 2020 market. At the beginning of 2022 Hipp again collaborated with his partners and closed a 2.6 msf Amazon distribution facility in Iowa for $326 million. It was the fourth largest industrial sale transaction of 2022 according to Real Estate Alert.
Joining Avison Young was a natural extension of Hipp’s industry milestones. Prior to joining the organization, he was best known as Founder, President, and CEO of Calkain Companies. With an entrepreneurial spirit, he successfully expanded Calkain’s services to uniquely include brokerage, advisory, asset management, research, and capital markets initiatives. With a hand-picked team of professionals, Hipp grew Calkain into one of the leading forces in U.S. commercial real estate activities, completing transactions well over $12 billion in net lease volume alone.
Hipp is a sought-after expert on market conditions, and his insights have appeared in such publications as the New York Times, Forbes and Fortune magazines. He also authors two blogs focused on capital markets and net lease on two of the industry’s leading business news websites: GlobeSt.com and Commercial Property Executive.
Hipp’s contributions to the industry have been recognized multiple times throughout the years. Both GlobeSt.com and Commercial Property Executive recently noted his achievements, naming him a Net Lease Influencer in 2020 and 2021 and nominating him for the 2021 Net Lease Executive of the Year.
Q1: What’s your position at Avison Young?
For those not familiar with Avison Young, we’re a full-service real estate company headquartered in Toronto. We have more than 5,000 professionals in 120-plus offices throughout the U.S. and internationally. I’m a principal in the capital markets group and head net lease activities for the U.S. We have net lease professionals throughout the U.S., but alongside my team, I am based in DC.
The net lease group focuses on transactions ranging from $2 million to $500 million. In fact, last year, Avison Young was involved in transactions totaling $1.6 billion in net lease sales and financings.
Q2: How would you characterize the Washington, DC commercial real estate marketplace?
It’s an interesting question, Lee, and one that’s more complex than it would appear. In many respects, the DC market replicates both the opportunities and the problems of the larger U.S. real estate picture. We came off an unprecedented pandemic only to face an economic crisis marked by inflation, record-high interest rates–the highest they’ve been in two decades– and a resultant hesitation on the part of investors.
In the DC market alone, my team currently has $100 million+ in net lease exclusives. Further, in the last 75 days we’ve closed on $35 million, and there’s another $25 million under contract and ready to close. And we’re very active nationally. For instance, we just closed on an $87-million net lease transaction in Michigan.
Yes, the market is very challenging right now, and there’s a lot of capital on the sidelines. But deals valued at $5 million and under and don’t require financing are actively trading, and the cap rate compression hasn’t moved much. Some net lease assets with creditworthy tenants and long lease terms are still trading at rates below a six cap–both in DC and elsewhere in the country. In fact, according to our research, the average Q2 2023 cap rate was at a 5.95%, an uptick of 30 bps.
Q3: We’ve all seen the troubling earnings reports of many major commercial real estate brokerage firms. How do you see that impacting the marketplace?
You’re talking to a glass-half-full guy, and I tend to keep my head down and advise my clients as best I can. One of the things that’s great about the net lease market is that people see it as a flight-to-safety comparative to other real estate food groups. It is considered a very resilient asset class.
It’s helpful to think of net lease deals essentially as bonds wrapped in real estate. So, a 7-Eleven in DC is the same for interested investors as a 7-Eleven anywhere else in the U.S. It’s a solid product that investors can understand easily. Plus, since it’s triple-net leased, it’s a passive investment, and the owner has no responsibility. That makes it a perfect estate-planning tool and great for both novice investors as well as professionals who don’t have the time to manage a portfolio day-to-day.
Q4: Where do you see the commercial real estate business going in the next six to 12 months?
It would be great if we could get a signal from the Fed that we’ve peaked in terms of interest rate hikes. You’d see the capital flow more freely then. That said, through pandemics and economic downturns, the market remains cyclical, and I’m a believer in real estate. I always advise my clients on strategies I apply to myself, so much so, that I have my own net lease portfolio.
It’s important to remember that investments are not so much about cycles, although these have to be taken into consideration. What matters is the asset. Despite current market conditions, there are a lot of attractive opportunities out there, especially in the net lease sector.
Based on my experience, I expect the fourth quarter will be very busy as investors look to get deals on their books, and this activity should flow into the first quarter. If we get that positive signal from the Fed, activity will simply continue to grow.
That’s what I suspect. But here’s what I know. If you choose the right asset now, with all of the parameters we discussed, including creditworthy tenants and long-term leases, despite what market conditions are today, five years down the road, you’ll be happy you made that investment.
