Black Eye For Marcus and Millichap
February 9, 2009
Over the past several years there has been a meteoric rise in the NNN-leased investment brokerage industry. I get emails every day from brokers all across the country looking to sell NNN leased investments from San Jose to places I’ve never even heard of. Some of these assets are high quality, and in great locations, with great tenants. Most others however are leased to companies and in towns many have never heard of. Yet, these assets get marketed (and were being sold) at historically low cap rates that made me wonder if the people buying these assets ever gave any thought to the concept of replacement cost or residual value, particularly single-tenant assets.
As the abundance of capital grew in the markets over the past several years, investors resorted to looking farther and farther away for decent returns and NNN leased investments were pushed because of the low management overhead. Now as retail falters and business begin shutting stores, many of the investors in these types of deals are left holding the bag. A group of investors who were sold these types of assets by brokers at Marcus and Millichap have filed a class action lawsuit in San Jose alleging that the investment brokerage and its brokers used a classic “Pump and Dump” scheme to hock many of these properties.
…The lawsuit alleges that Morabito and Waelti bought small franchises of Jiffy Lube and Church’s Chicken, among others, and the real estate where the businesses were located.
They then sold the properties to a subsidiary of Marcus & Millichap and leased them back at rents well above standard market rates, the suit contends. Based on those rents, the brokerage sold the properties to investors at inflated prices, the suit alleges. Morabito and other tenants then closed the businesses, leaving the investors with greatly devalued real estate, according to the suit.
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people will stand to lose a lot of money on these types of deals. Unfortunately, TIC and other “investment advisors” peddled these types of investments to many older individuals who used NNN property income as their retirement plans.
Many of those dollars will go away and properties will be lost. Frankly, I would also be curious to know how real estate brokers in one state can sell properties all over the country. I thought you needed to be licensed in the state you sell property
As someone who has worked with M & M in years past, I too was pitched many of these investments. I passed on all of them, because the numbers just didn’t make sense.
Good thing I did.