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Four Things I Think… I Think


If you’ve read these articles in the past, you might be able to guess this opening paragraph. If this is the first article I’ve written that you’ve ever read, I generally use this forum, especially around this time of year, to poke fun at the talking heads, the prognosticators, the experts… those that make predictions without data or context. I don’t care much for predictions and often I care less for those that make them. Generally, my disdain comes from the fact that they’re largely wrong and those that offer unfounded opinions accept little accountability.


What’s more frustrating and sometimes dangerous are those that happen to get it right. No one knows with any certainty who is going to win the Super Bowl or be the next President. We just don’t have enough information to make an educated guess with any accuracy. But, if someone screams what turns out to be the correct answer loud enough, regardless of the faulty logic behind the prediction, and happens to get it right we tend to bow to their predictive powers as if they were some type of wizard. We give them this reward when they performed the equivalent of guessing closest to the number of jellybeans in the jar–and this can lead us down a very bad path because the probability of lucky is just not in their favor.


So, once more, let me say what follows are not predictions—they are thoughts and ideas that could be right, but could just as easily be wrong. Even the title is non-committal. If you promise to take them as they are, I promise not to write an article in a couple of years telling you how brilliant I am because I happened to be right in my speculation.


Self Interest Suggests We Should Be Rooting For Waynesboro, Among Others.

The big brands we’re all familiar with are generally split into two camps. Corporate owned stores are managed and operated from a regional or national headquarters (think Walmart and Chipotle). In a franchisee-based model, ownership is spread to individuals who purchase a territory and are granted the right to operate stores under that brand (McDonald’s, Dunkin’ Donuts).


In both cases, but for different reasons, the cluster of viable markets is an important component of expansion. For example, when a retailer begins locating stores in Washington DC, the path to Charlotte, NC is a fairly predictable one that runs through NOVA, Fredericksburg, Charlottesville, Richmond, Durham, Greensboro, and finally Charlotte. It’s a development path that permits an efficient supply chain and cost effective marketing efforts given the overlap in coverage.


The path down the I-81 corridor has a few more gaps between viable markets. For corporate stores the jump from Winchester to Harrisonburg and from Harrisonburg to Waynesboro and Roanoke is achievable. However, for franchisees it can represent a greater challenge, especially since the operational team is often limited to one or two and the longer distances can put a strain on management. Waynesboro offers excellent evidence of the benefits of proximity. Several franchisees starting in Charlottesville have opened a shop in Waynesboro. It’s a growing market, a close market, and a familiar market. It’s also an additional pathway to Harrisonburg for both corporate and franchised retailers. For all of the complexities associated with a site selection decision for national retailers—sometimes entering a new market is just a matter of convenience.


There Is Demand Among Purchasers For Office Condos, But They’re Not Being Built.

On average, the price of small office condos sold over the last couple of years has been close to $200 per square foot. Not too many have sold, but not too many have been on the market. Strangely, the lack of supply isn’t reflective of the demand for the product. In fact, spaces of 2,000sf and less have been particularly popular and will likely continue to be desired by office users wishing to own rather than lease in an improving economic environment and increasing lease rates.


Assuming $80-$110/sf for construction; $3/sf for site prep costs and some soft costs; and $8/sf for land acquisition—it would appear there is plenty of room for the balance of additional expenses and a healthy profit. Still, they are not being built and I’m not exactly sure why.


It’s A Better Time To Buy Land Than Net Lease Properties.

It’s not even close, net lease properties (triple net properties) continue to be the darling of the investment world. This high demand has resulted in capitalization rate compression—in many cases to historically low levels. The combination of low risk national retailers (Sheetz, McDonalds, Walgreens, etc), structured rates, and typically long leases have obviously made for a compelling case as investors are happy with cap rates as low as 3.75% in some cases. But will the story be as compelling in the near future?


Meanwhile, the development pipeline is filling up and planned new store openings continue to increase, which should create opportunities for well positioned land to attract national tenants to freestanding or strip center options. Make no mistake, well-positioned land is not easy to find, but what is available is comparatively less expensive and permits the investor to create their own net lease investment through a ground lease or build-to-suit with a much better return.


Donuts Are Coming, But You’ll Have To Wait On More Specialty Burgers.

Purveyors of baked pastries will continue to pop up throughout the Harrisonburg metro over the next couple of years. Both national brands and local independents are likely to open at least five new shops in addition to those already in place like Dunkin’ Donuts, Strites, and Baker’s Dozen. Meanwhile, those wishing some of the fast casual burger joints like Smashburger, ZinBurger, and Mooyah Burger would soon come to the market will have to wait. There is nothing along those lines on the radar. Take comfort in the fact that somewhere else in America, someone is wishing Jack Brown’s would come to their town.

Tim Reamer provides commercial real estate brokerage and consulting services with Cottonwood Commercial and specializes in national retail representation, investment property (multifamily | commercial | NNN), and development projects. Learn more at