The Net Caster
Jotham Sederstrom Nov. 1, 2010, 10:44 p.m.
Among the elusive signs of economic recovery to emerge over the past few months, nobody could have predicted that a Burger King franchise outside of Binghamton would serve up anything other than Whoppers and French fries.
And yet, in a way, the typical-in-every-way fast-food restaurant on Ash Road, which went into contract last week, is emblematic of a modest boom in net-leased transactions in New York and, perhaps, a tea leaf into the recovery.
While office leasing continues to climb sluggishly and development projects are nearly nonexistent, net-lease and sale-leaseback deals in New York State appear to be stubbornly buoyant. And perhaps no one working in Manhattan today knows this more than Marcus & Millichap broker Glen Kunofsky, who has seen a steady rise in such business since well before the Great Recession.
Indeed, since 2005, Mr. Kunofsky’s largely national transaction flow has shifted to the East Coast, where about 70 percent of his deals are with one-off buyers, as opposed to the institutional groups that traditionally make up much of his business.
“Five years ago, only about 10 or 15 percent of our buyer pool was based in New York,” claims Mr. Kunofsky, a senior vice president who specializes in net leasing. “But now, because New York has held up so much better than a lot of other markets, we’re seeing so many more of the New York buyers.”
For Mr. Kunofsky, a Rockland County native for whom distinctions between net, triple-net and absolute-net leasing roll easily from the tongue, the recent boom in New York business is hardly new. Since joining Marcus & Millichap in 2001, the broker has flexed his real estate muscle outside the East Coast, inking deals on behalf of companies like Ruth’s Hospitality Group and the Carrols Restaurant Group, the largest Burger King operator in the country. But despite a healthy portfolio of food-oriented clients such as Whole Foods Market, Golden Corral Corporate and Circle K, he has also cultivated REITs and numerous realty funds, including Dividend Capital Total Realty Trust.
Prized as the firm’s top retail agent for four years running, Mr. Kunofsky has closed more than 1,200 deals totaling an estimated $2 billion–including an annual $225 million in each of the past three years–since being hired, briefly, as a hospitality expert. Currently, the real estate group he founded, NNN Properties, is under a subcontract with Marcus & Millichap, where he oversees a team of nine.
“The problem with selling the hotels is you’re selling an operating business,” said Mr. Kunofsky, 39, who graduated with a bachelor’s degree in hotel and restaurant management from Arizona State. “Transactions are complicated. A lot of the buyers and sellers fight over what the actual cash flows and numbers are, and it’s very difficult to negotiate and get real information. In the end, it just wasn’t what I wanted.”
As for that Binghamton Burger King transaction last week, Mr. Kunofsky unloaded the 2,470-square-foot asset to Kamala Holding for approximately $1.7 million. Subsequently, he said, the Tanzania-based investment group will now lease the patty-and-cheese asset to the Carrols Restaurant Group for 20 years. A similar deal in Yorkshire should go into contract this week.
Meanwhile, Mr. Kunofsky is about to close a sale-leaseback transaction on behalf of Pennsylvania-based Lehigh Gas Corporation, the largest Exxon Mobile distributor on the East Cost. Under a 20-year lease agreement, a portion of the $14 million portfolio of gas stations across New Jersey and Pennsylvania should close next week, with the remainder of the portfolio sealed by the end of this year, he said.
“Demand has been, like I said, hitting its stride,” said Mr. Kunofsky. “In New York, we were less hit than a lot of the other commercial real estate sectors. We’ve had a lot of volume lately.”
MR. KUNOFSKY’S PATH into the real estate business was circuitous, to say the least. As the wise philosophers Adam Horovitz and Mike D once sang, “fight for your right to party,” which is exactly what the young Arizona State University student had in mind when he decided to buy a house in an effort to throw far more extravagant soirees than angry neighbors at his apartment complex had been willing to tolerate.
What happened after that–besides an onslaught of increasingly noteworthy get-togethers–is what Mr. Kunofsky described as a crash course in real estate investment. Indeed, what began as a one-off housing purchase turned into a string of increasingly savvy real estate deals, until, eventually, he owned nine homes all across Tempe–each acquired before graduation day.
“The parties got bigger at the house, but then, when I became the landlord, I didn’t want to mess up the asset,” Mr. Kunofsky recalled of his circa-1990s string of real estate investments. “I became the ‘man’ who didn’t want to have the parties. But that was my first break into the real estate industry.”
Besides stumbling into the real estate business, however, the broker’s early bid to throw unencumbered bashes also precipitated a fortuitous meeting with the woman who would become his wife. To be sure, she was a guest at one of his first parties and, later on, a tenant at one of the homes he rented out during his nubile real estate grab. On Thursday, in fact, Mr. Kunofsky and his wife, Alison, celebrated their 10th wedding anniversary, he said.
But with a broker who once spent part of a vacation in Denver investigating traffic flow patterns outside of a local Walgreens, not even 10th anniversary plans are immune to the demands of the real estate industry. A tour of far-flung gas stations across Louisiana and Arkansas, for example, was high on the itinerary late last week during a planned excursion to New Orleans.
“She was like, ‘Maybe I’ll fly down with you Wednesday night’ and I’m, like, ‘Honey, no, I’ve got about 9 or 10 hours of driving through Arkansas and Louisiana to look at gas stations,'” laughed Mr. Kunofsky, who, in the past, has dragged his tireless wife and two kids on a merciless out-of-state tour of Burger King franchises. “I said, ‘You’re more than welcome to come with me, but I think that flying directly to New Orleans is probably the better idea.'”