Cracker Barrel in Victorville, California, was the first one of the brand to open in California after a 20-plus-year absence. | Images courtesy Marcus & Millichap

Cap-Rate Lows for Victorville Restaurant Deals

Carrie Rossenfeld Retail

Recently, Paul Bitonti, VP investments for Marcus & Millichap (M&M) represented the seller in three single-tenant net-lease sales in Victorville, California, for properties that were part of a restaurant-row concept. The properties involved were the first-ever Cracker Barrel, BJ’s Restaurant, and The Habit.

The Cracker Barrel deal closed at a 4.52 percent cap rate, The Habit at 4.28 percent, and BJ’s at 3.45 percent, which M&M believes are the lowest cap rates for each respective tenant nationwide.

SoCal Real Estate: spoke with Bitonti about these deals in addition to restaurant row and other concepts that lend themselves to single-tenant net-lease tenants and these types of deals.

Paul Bitonti

SoCal Real Estate: What stands out for you about these Victorville deals?
Obviously, it’s been a pretty long recovery period. There were areas in the Inland Empire that previously weren’t No. 1 choices for development, but people are active out there now, and there have been shifts there in terms of growth. This market is ripe for development.

As far as the deals themselves, it’s a combination of things. It was incredible pricing for our client. We competed on the assignment with five other brokerage houses and delivered the pricing we said. They said we were crazy — it’s Victorville and people aren’t going to pay those kinds of numbers. But lo and behold, we found the right buyers, and they got comfortable with it. When people drove out there and saw the activity and traffic, they were real believers. It’s a very are off the I-15 freeway, so there’s a lot of traffic exposure.

When they opened up Cracker Barrel, there was so much fanfare around that opening, and sales over at BJ’s went up. This made the development very successful.

What makes restaurant-row concepts attractive to both customers and investors?
There’s a trend of eating out today. The big segment of the population is millennials, and they’re eating out more. Developments with casual dining and QSRs nearby cater to a lot of different people’s tastes, and this creates synergy for people who want to go out to eat — they can choose whatever they want.

People are crazy about Cracker Barrel. They’re out of Lebanon Tennessee, around 56 years old. They were in California about 20-plus years ago in some location, but it must have closed, so not that many people out here are familiar with them. Now that they reopened out here, it’s incredible. People traveled from all over California for the opening.

To be successful with restaurant-row concepts, I think you have to identify and understand the demographics and psychographics of the area. Cracker Barrel is probably not going to go to Newport Beach — you have to go to an area where people identify with the brand. The people have to be there, and the property has to have traffic and visibility.

There’s a multitude of positive things about Victorville. There are people who live in Victorville who are commuting back and forth and don’t want to cook, plus there are retail and hotels surrounding you.

So, it’s a combination of a lot of the right things in the right location. This is a highly successful development; if it wasn’t, a lot of investors probably wouldn’t have taken a chance on it. Even BJ’s didn’t want to go there initially, but now that they’re there, they’re doing well.

What other concepts are becoming popular single-tenant net-lease tenants to which these investors are attracted?
QSRs are still hot: Raising Cane’s, Chick-fil-A — those two are at the top of the list for everybody. The Habit is still doing deals out there. Mod Pizza — a lot of those are active. So are dollar stores. Drug stores are kind of slowing down their expansion; there are not as many being built as there were a few years ago. QSRs and some casual dining are expanding the most right now.

What else should our readers know about Victorville as a market for single-tenant net-lease deals?
You have to look at each of these deals individually. Brokers have tried to commoditize it, but you can’t. So many factors come into play. You have to look at each deal on its own merit and size and price it appropriately. Net lease is still a very strong category for investment real estate, and there will continue to be more of that.