Gas stations, grocery stores draw interest from venture-backed startups

More investment funds have been buying up properties occupied by a single tenant, including by small businesses.

NOTE: The following article appeared in the March 30, 2022, Wall Street Journal, print edition as ‘Investors Set Sights on Small Businesses.’ Debbie Ravel, NRTA President, suggested we share it, and noted, “This why a NRTA Membership is valuable to Tenants with any size portfolio.”

By Konrad Putzier

Some real-estate investors looking for the next big thing are turning to small businesses.

A new breed of property firms is buying up buildings occupied by gas stations, doctors’ offices and corner grocery stores. They see an opening because big asset managers typically avoid these properties, which they consider risky.

Withco, a New York-based landlord that signs rent-to-own deals with small businesses, recently raised $30 million in venture funding from backers including Founders Fund, Canaan Partners, Lennar Corp., actor Will Smith and athletes Venus Williams and Kevin Durant.

Keyway, also of New York, buys medical-office buildings from small businesses and then leases them back. Earlier this month, Keyway said it landed a $70 million debt facility from a group of banks to fund its acquisitions.

These firms are the latest example of real-estate investors venturing into more obscure corners of the property market. They are looking to buy unconventional properties—also including cold-storage facilities and short-term rental homes—because historically low interest rates have pushed up the prices of apartments, warehouses and other more traditional commercial-property types.

Big investors often avoid properties occupied by small businesses because they are considered more likely to shut down and stop paying rent than big chains, said Spenser Allaway, a senior analyst at real-estate analytics firm Green Street. The sector was hit hard during the pandemic’s first year, when many shops and restaurants were forced to close for weeks or even months.

But over the past 18 months more investment funds have been buying up properties occupied by a single tenant, including by small businesses. Store Capital Corp., a real-estate investment trust focused on the sector, said it invested around $1.5 billion in 336 properties last year.

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