Get Used to a Slower Market, Says Robert Miller of Millco Investments

The impact of the credit crunch on every corner of the commercial real estate market is now well established, but the question remains: how much longer will financial markets be in a funk? And will a generalized slowdown in the economy slow the business down even more? Robert Miller, president and founder of Chicago-based Millco Investments, cautions that the net lease side of the business, while not in a state of collapse, is going to have to get used to the slowdown at least until after the presidential elections, and probably longer. Both buyers and sellers will have no reason to plunge into the game with quite the gusto they did in the pre-crunch days, he notes–and won’t again for quite a while. And yet, the net lease market will survive. Miller’s own strategy for making the best of current times, he explains, is diversification. Since founding the company in 1999, besides selling, leasing, or redeveloping single-tenant net lease properties, he has also completed transactions involving apartments and retail properties, manufactured home communities, and tenant-in-common structures. CPN recently spoke with Miller about the state of net lease, and the outlook for the market. CPN: How would you characterize the net lease market in these credit-squeezed times? Miller: There’s a flight to liquidity, which means fewer buyers in the marketplace, and tenants are doing fewer deals because of the economic slowdown. The market isn’t as fluid as it was. It’s a slowdown, and if you’re seller, you need to be patient, because it’s going to take you a little longer to find that buyer, and you’re not going want to negotiate to that last nickel on the table. If you’re a buyer, you should be cautious. CPN: Why is that? Miller: Retailers are scaling down their expansion — Starbucks and Home Depot, just to name two of the larger examples. Buyers should evaluate these investments from an alternative-use perspective. Can you at lease duplicate the revenue stream that you’re dependent on? Values will remain relatively good, but not as consistently strong as they have been. CPN: Are we in for a protracted slowdown? Miller: Yes. No one can say exactly how long, but the problems with the mortgage and debt markets are going to continue to be tremendous contributors to the slowdown. That combined with economic volatility, and the prospect of higher capital gains taxes with the change in government after the election, is going to keep potential buyers on the sidelines throughout this year at least.