New Calkain Division Targets Institutional, Private-Market Clients

Founder, President & CEO Jonathan Hipp, describes how existing relationships and shifting market dynamics led him to start the brokerage's capital markets group—NetCMG—in June, along with his plans for growing the new business line.
Jonathan Hipp

In June, Founder, President & CEO of Calkain Cos. Jonathan Hipp tapped existing relationships to start NetCMG, the firm’s capital markets division, and the timing couldn’t have been better. This year’s introduction of tax reform has helped in making sale-leaseback transactions more attractive for corporations—and increasingly lucrative for NetCMG. In the following exclusive interview, Hipp describes the industry trends he’s been following and his plans for the newly established business line.

What capital markets trends have you observed in the market, and how is NetCMG responding to these?

Hipp: People are chasing yield still, but as interest rates start to push up, it is creating pressure. There’s somewhat of a disconnect on pricing, so we’re all trying to find deals that we can make work in light of the change in interest rates from a year or even six months ago.

We are trying educate our sellers.  The market is a bit different today than it was six months to one year ago. We need to set expectations to bridge the gap between what a buyer wants to pay and what a seller is (willing to accept).

Our sellers (understand) that if we want to get solid executions in a timely manner, then we have to price to the market. If you’re focused on maximum proceeds, then we can be aggressive, but the market might not respond quickly. A faster execution, on the other hand, requires understanding the market dynamics, (which) are always changing.

Calkain built its business on the net-lease industry, focusing on the $1 million to $15 million range with the majority of our transactions being in the $2 million to $10 million for single-tenant asset sales. We’ve created one of the most successful private, net-lease companies in the country.

What motivated Calkain to start a capital markets division?

Hipp: More often, we’d get referred to someone by one of our clients, and as an example, that person might be looking to sell an industrial building or do a sale-leaseback of an industrial distribution facility or a hospital. Before (potential clients) would call us, they would visit Calkain’s website and see that 90-95 percent of our offerings are retail (transactions) in the $1 million to $15 million range.

That’s why we set up a whole new capital markets division: It’s a way for us to show people that we focus on a wide range of assets, all within the net-lease sector. Whether it’s a $20 million or $100 million deal, for us, it’s the same process. (Regardless of property type), our database reaches all the institutional, high-net-worth, overseas and 1031 exchange buyers.

What are some deals that NetCMG has done so far?

Hipp: We recently took to market a $65 million sale-leaseback (opportunity) in Vail, Colo.: a behavior health/addiction treatment facility that is going to open in spring 2019. In the second quarter of this year, NetCMG also did a credit-tenant-lease (CTL) financing (transaction) on a children’s hospital in Maryland for $35 million. We’re just getting ready to take a zero-cash-flow deal to the market—on that same children’s hospital—within the next few weeks. And right now we’re working on a $20 million sale-leaseback (deal), and we’ve got proposals out on a couple more opportunities.

We are absolutely going to continue to focus on growing Calkain, and a big part of that is growing our capital markets and investment banking side through NetCMG.

We have existing relationships with all these institutions and developers, as well as different clients and prospects around the country. They like working with us, and they know the quality of our work. For example, the person that gave us the CTL financing (deal) is a client that has done business with Calkain for years. We’re effectively a one-stop shop, focusing on (the) net-lease vertical.

What’s next for NetCMG?

Hipp: We’re chasing the sale-leasebacks in a big way. I have two people working with me that came from Big 10 accounting firms, Ernst & Young and Arthur Andersen LLP. We think we can handle just about any size sale-leaseback and can delve into the financing and understand any tax issues. The new tax law provides a few advantages for sale-leaseback deals and offers opportunities for firms to better leverage their capital. We’re going to put some emphasis on the CTL side, too.

We’ve currently got about $100 million (in deals) out in the market, and would like to have another $100 million by the end of the year. Calkain didn’t reach $12 billion (in closed transactions) overnight. Net CMG’s growth will take time, but I don’t see any reason why we can’t get to $1 billion in net capital markets business for NetCMG.