“I think this software adds a tremendous amount of value to this industry. Working with Placer has been amazing and I think this technology and the value that it brings to the transactional part of our business is not going anywhere."

~ Jacob Zweig, Operations Manager

The Challenge

Pegasus Leverages Placer to Assist Diligence for High-Net-Worth Client's $20M 1031 Exchange

Jacob Zweig is an operations manager at Pegasus Investments, a net lease retail-focused real estate advisory firm based in Los Angeles. His focus is on helping the Pegasus team source assets that fit its clients' investment goals and risk profiles as part of Pegasus' 1031 exchange advisory service line. Placer is an indispensable tool for Jacob and his team. As a self-confessed "numbers guy," he loves that he can use Placer's objective data to compare deals nationwide.

The assignment was straightforward: a high-net-worth investor engaged the Pegasus team to exchange $20 million of proceeds into multiple high-quality, low-risk, triple net leased core assets that would one day pass down to their family. Jacob began searching through the market for deals that would fit the client's investment objectives, uncovering two promising restaurant deals.

Deal #1: a new construction fast casual concept in strong Texas market

The first property Jacob sourced was a new fast-casual deal in the greater Dallas-Fort Worth metro that had many compelling attributes:

Building: under construction, 4,000+ SF, drive-thru, and 15 year lease

Demographics and Area: high surrounding HHI ($150k+), strong growth in income and population, and a highly rated city.

Business: Over 1,000 locations in the U.S., 11% same store growth in the preceding two years, and minimal risk of cannibalization as the nearest stores were more than 10 miles away.

Jacob described it this way: "The fundamentals of the acquisition were all there," remarked Jacob. "Dallas-Fort Worth MSA, strong tenant, large building format, new construction, long-term lease, drive-thru, etc. While it had a questionable construction timeline, that alone would not be enough to pass on this offering."

Deal #2: a new construction store for a rapidly growing burger venue in a Sunbelt state

The second candidate also had many attributes that fit the client's targets:

Building: under construction, 3,500+ SF, drive thru, and 15 yr NNN lease

Demographics and area: high household incomes ($150k+) within 1 mile, nearby 50k traffic counts from nearby major retail corridor, population growth of more than 20% projected.

Business: Strong tenant credit, close to 1,000 locations in the USA, and one of the fastest-growing restaurant chains in the Southeast.

‍The Solution

Validating with Placer Data Uncovers Risks with Both Deals

An avid Placer user, Jacob completed his diligence quickly. Jacob was troubled. With less than 2 pages of data, Jacob found enough wrong with the deals to pass on both of them.

Regarding the Texas Deal, Jacob notes: "When we examined foot traffic at the surrounding retail using the “Surrounding Retail Rankings Report” (below), our subject store had underwhelming numbers that put it in the bottom third for the region and state, shown below. This wasn't good enough for our client."

Learn more about Ranking Index

The Sunbelt deal was rejected quickly as well. When Jacob examined the chain's performance, the foot traffic in that state underperformed when compared to their locations within states where they had a more established presence. While the brand may become more popular in the new state as they expand, the deal did not match the client's risk profile.

Below is the report that Jacob used to validate foot traffic levels at the store, putting the target state's stores at the bottom of the foot traffic per store - not an encouraging sign.

Refocusing on Assets with Better Risk Profiles for the Client

Recognizing that the two deals in question did not put their client into strong, core assets that would clearly do well over time, Jacob and his team helped the client select alternative deals that matched the client's investment strategy and had better Placer traffic reports.

Ultimately, the team selected two triple net leased, corporate-backed pharmacies, a bank, a burger drive-thru, and a coffee concept for the client's exchange. Performance was much stronger at these stores, giving the team much more confidence that they were helping the client select good deals.

The Outcome

Success: A Happy Client and Another Layer of Diligence to Validate the Investment Decision

As for the alternative deals, Placer played an important role in underscoring their higher comparative performance. This was the third exchange handled by Pegasus from this client, who appreciates the insights that Placer provides. "This client loves Placer. When we pulled the data for these alternative deals, they were great - putting them in the top 70-80th percentile. These were really strong tenants that don't close doors, and the client trusted the data," said Jacob.

While Placer helped Jacob and the Pegasus Investments team reject two deals in this instance, it provided outsized returns by helping to objectively confirm the investment thesis for property performance during their due diligence process. We look forward to working with the Pegasus team in the future.

‍