John Moragne: Yes. So this is one that we’re really excited about. I think it’s a great example of the creativity that we can show in a market like this. Net Lease REITs, as I said during my prepared remarks, I think we’re not going to be able to rely on the low interest rate fueled growth that we saw for 15 years post GFC. We have to start relying on real estate expertise, operational expertise, direct relationships, finding creative solutions. And the pullback in commercial real estate lending has provided us that opportunity and we’re jumping into it with both feet. So this is a direct opportunity that was brought to us. We partnered with Sansone on this. Sansone is also our partner on UNFI. They have been managing this retail location for 30 years, initially constructed it.
So we have a ton of confidence in their ability to manage this. The current — well, not the current, we’re the current owner, but the prior owner had a closed-end fund that they needed to harvest and roll those funds into something else and make distributions to LPs. And they were in a position where there wasn’t a huge opportunity from commercial real estate lending, or other capital sources to fill the gap and we were able to do so. And so we went in and this is a creative unique solution where we’re really, really happy to have acquired at above average cap rates, seven retail sites that have a ton of value, as I mentioned in my remarks, Bass Pro Shops, Chick-fil-A, and LongHorn Steakhouse, Burger King, I mean really some quality names that we can add to the portfolio.
And to do that, we needed to step in and provide a holistic capital solution. So the transitional capital we’ve provided to this site. It’s really in two tranches. One tranche specially, as you alluded to — Caitlin, excuse me, we are looking over time to shift that into a ground lease. There’s some work to do. You got to work with the tenants on that. So we need to see where that one goes. And the second tranche of that is likely a three to five-year hold period. It’s transitional in sense that there’s some lease-up activity and some lease extensions that need to be done. We’re already 95% leased on this site, so it’s in great shape, and then converting that over time as they look to find a long-term permit owner. Sansone has been a great partner.
There are other people out there that have similar situations. This is a creative opportunity for us to allocate capital in an environment where you’re seeing historical lows on traditional net lease transaction activity. And so we’ll happily look at these. This may be a unique one-off opportunity that we pursue, and it may be something that we do again. We’ll just have to wait and see what the opportunities that brings us.
Caitlin Burrows: Got it. That sounds good. And then maybe just similarly on the industrial deal, I guess, bigger picture like to have acquisition cap rates in the mid-7% range for retail and industrial does seem like a really good outcome for you guys. So incremental to what you just said on the retail side, is there anything else you could add for kind of how you expect to achieve those kinds of yields over the rest of the year? And if there’s any other additional color you could give on the industrial property again, like how you sourced it, what made it unique for you guys? Yes, anything else on that?
John Moragne: Yes. So the industrial deal that we sourced — directly sourced internally from a personal relationship. It was an opportunity that was brought to us, because they were looking for someone that would provide surety of closing, ease of execution and the ability to cut a big check and provide a holistic solution for an acquisition that they were working on. We’re very pleased with it. We’ll have more detail on that in the future. But again, it’s an industrial campus in California. You’re in the 7 cap range on that. That feels really good right now. Going into the future, to take the other part of your question, we are continuing to see some good opportunities, mid-market industrial in that 7 cap range. We’re excited about those, so is everybody else.
If you look at what a lot of people are pursuing right now from public REIT buyers as well as private institutional buyers, they really like mid-cap industrial. So those are highly competitive. We’re going to continue to exercise really strong discipline. We’re not going to chase those to a place where the risk reward doesn’t make sense anymore, and if we lose them, we lose them, that’s okay. Conversions are harder right now, but if we can find the right ones and the right relationships, and that’s why the direct relationships and the off-market opportunities are so critical right now. If you’re trying to build a pipeline by going off and just bidding on the things that are showing up in the e-mail blast or the brokers, that’s going to be pretty hard over the next little bit here.
So, working on those. Working on creative opportunities like the retail center and working on building out and laddering out that pipeline of build-to-suit transactions. This is where a lot of our focus is right now.
Caitlin Burrows: Thanks.
John Moragne: Thank you.
Operator: The question today comes from the line of Eric Borden, BMO Capital Markets. Please go ahead, your line is now open.
Eric Borden: Hey good morning everyone. Just on that last point around laddering the potential development opportunities how are you guys thinking about that just given the delay between the capital outlay and then when NOI, kind of, comes online for you guys?
John Moragne: Yes, there’s a balance there. I think it’s really attractive from a differentiated growth strategy, but you have to balance it with current rent-paying new opportunities. One of the things that we want to spend time on is the pro forma leverage that we included this quarter for the first time we are sitting on a low levered position already at 4.8, but when you pro forma in the way that were UNFI coming online you get down to 4.6. So, we’ve got a lot of room there but it is a balance between these things with capitalized interest. There is some near is some current benefit as we are funding these over time but the real benefit is when they come online. So, being able to ladder them I think is important. If you’ve got these big huge balloons and nothing between that gets a little bit more difficult.
But if you’ve got them coming online in a more consistent basis, which is the hope that we have we need to prove that out, then it starts to be a really attractive way to we allocate capital.
Eric Borden: That’s helpful. And then outside of your traditional net lease transactions some of your peers have had success in the sale leaseback financing market. I’m just curious to hear your thoughts around what you’re seeing today and if that is a potential solution for you guys to kind of grow externally?
