At First National Realty Partners, we have a significant amount of experience with net leased assets and a firm understanding of what drives cap rates for them. Ronny is fantastic. For this report, SRS reviewed Q1 2021 sales reported by Costar for the following sectors: Automotive, Bank, Big Box/Superstore, Casual Dining, C-Store/Gas, Dollar Stores, Educational (Childcare), Fast Casual, Grocery, General Retail, Medical STNL, Pharmacy, and QSR. 2022 Assets America, Inc. All Rights Reserved. Safer assets with high quality tenants like Walgreens, Dollar General, Amazon, Whole Foods, or McDonalds on long term leases are the gold standard for safety in a turbulent market so they may be less exposed to cap rate movement. Focusing on business development, industry and client-specific research, and the analysis of local and national market trends, Lanie Beck has been the Director of Research for Stan Johnson Co. since 2013. Fast turn around. Cap Rates in 4Q21. Unsurprisingly, lenders want the insurance proceeds to go toward the loan, not property restoration. Consumer views on both present and future economic expectations continue to downgrade from the pressures caused by inflation and the lack of available goods caused by global supply chain issues. In the first quarter of 2021, bank properties with leases in excess of 18 years commanded cap rates of 4.30%, a 10 basis point decrease from the prior year. In fourth quarter, activity reached $18.3 billion, representing a 37 percent jump from the previous quarter and a 38 percent increase from fourth quarter 2020. $100 million purchase price 6% going -in cap rate $35 million equity contribution $65.0 million loan 65% LTV fee simple value; 9.2% debt yield $49.2 million Leasehold Value 8% cap rate It is expected the QSR sector cap rates will remain relatively flat or slightly compressed through the first half of 2021. Cap Rate: 5.25% Circle K Sector: Convenience Store 4.78% Understanding Credit Ratings The level of annual, single-tenant transaction volume consistently ranks the firm in the top 10 companies nationally, according to industry benchmarks determined by CoStar and Real Capital Analytics. With negative net branch openings throughout the years, the supply of bank ground leases is heavily concentrated with short term leases John Feeney, Senior Vice President, The Boulder Group adds. On a 30-year mortgage, that means a lease term of at least 35 to 40 years. The Discount Dollar sector continues to be one of the most highly sought-after spaces as investors target growth opportunities given high volume of sale transactions being made in comparison to other retail sectors. These brands and others in the industry alike have been able to quickly adapt to customer demand by space remodeling, adding drive-thru to permitted spaces and provide in-app and delivery orders. Get instant access to all of our current and past commercial real estate deals. Casual dining companies that were able to adapt to a fast-casual dining models have had the best success. patrick.nutt@srsre.com. RealtyRates.com, publisher of quarterly surveys of commercial real estate investment, financial, and market data including mortgage and equity requirements and cap and discount rates. Consequently, these properties experienced the greatest amount of compression in the sector.. Factors that can cause a net leased propertys cap rate to change include things like: market, location, tenant quality, and lease length. During the first half of 2021, households will likely continue to self-quarantine and a wave of bankruptcies will increase the number of permanent job losses. We would most definitely utilize their services again and again for all of our real estate needs. Will Cap Rates Continue to Increase in 2022? 2 Bedrooms Rental Houses in Istanbul. General retail sectors include fitness, hardware, furniture, home goods, cellular stores and other retail types which do not fall under one of the other focused sectors. Cap rates in Q1 compressed 3bps compared to Q4. They helped and successfully guided us to beat out 9 other competing offers! In the retail sector, they inched up a few basis points to an average cap rate of 5.88% and in the industrial sector they averaged 6.77%. endstream endobj startxref Average cap rates for single-tenant industrial assets have compressed substantially in recent years, falling more than 100 basis points since the mid-2010s. For the best in commercial real estate financing, Assets America is the smart choice. Accordingly, as banks implement their modern footprints and mobile banking strategies, bank branch closings have become more common. Average cap rates have stayed historically consistent in the mid 6% range while recording at 6.34% in Q4. Starbucks concept is to sell decommissioned shipping containers as an environmentally friendly alternative to conventional construction. The average cap rate for bank properties sold in Q4 decreased by 42 bps compared to Q3 while average lease term decreased by 1 year. : Properties with longer term leases have less risk (lower cap rates) than properties with short term leases. Annual Interest Rate - The annual rate to be paid on the mortgage. Totally amazing. The number of properties trading hands in this sector increase back to historical averages, demonstrating how investors are again looking at the net lease retail sector in general as an attractive, low- or zero-management investment market with stable cash flow & sizable returns. However, short term leases with strong underlying real estate fundamentals will be in demand amongst certain investors who are willing to take on more risk through potential re-tenanting or redevelopment of a property., To view the full report: https://bouldergroup.com/media/pdf/Net-Lease-Bank-Ground-Lease-Report.pdf. This may exclude confidential and/or proprietary information. 156 0 obj <>stream Cap rates for Q4 recorded at 5.64% while the average lease term increased to 10 years from 8 years in Q3. We came to terms with the Seller, entered into a purchase agreement and opened escrow. They do. COVID-19 Vaccination | 203.8 million (61%) people in the U.S. are fully vaccinated in Dec/2021, Startups are Growing | 432,000 new business applications in Nov/2021 (up 9% YOY), Evolving Work Force Environment | Remote Work & Space Hybrid Conversions, Liquid Deposits | Increased by 4.8% since Nov/2020. It is expected the QSR sector cap rates will remain compressed into the first half of 2022 as this sector remains to be a highly sought-after investment opportunity. Just $159 per office (not per user) per year. Tenant pays base rent plus their share of property taxes, insurance, and maintenance. UNITED STATES HQ8144 Walnut Hill Lane, Suite 1200Dallas, TX 75231. Consumers have shifted toward personal mobility over public and shared transportation due to the impacts of COVID-19. Moreover, Q4 saw the most NNN Medical or Medtail transactions of any other quarter in 2021. Even as the market emerges from the pandemic, and consumers may depend slightly less on e-commerce in the near term, the outlook still points to a long-term reliance on industrial product, and investors will continue to be drawn to opportunities in this sector. The demand on the educational sector has been changing and evolving due to the impact of COVID-19. These brands and others in the industry alike have been able to quickly adapt to customer demand by space remodeling, adding drive-thru to permitted spaces and provide in-app and delivery orders. So, Assets America handled both the sale and the loan for us and successfully closed our escrow within the time frame stated in the purchase agreement. Having them on our team meant that we could always receive truthful, timely and accurate answers to our questions. Our experienced team provides unique insight to the net lease industry. Copyright 2023. The discount dollar sector continues to be one of the most highly sought-after spaces as investors target growth opportunities. Tables may be inserted directly into appraisals and similar business reports. However, many investors who discovered the asset class in the last decade as they chased yield are realizing its increasingly difficult to find in todays market. Cap rates tend to move in conjunction with the 10-year treasury suggesting that additional increases are on the horizon, especially for riskier assets. 2023 Commercial Property Executive. Average cap rates fell into the 4% range recording at 4.72% during Q4 due to increased flight to higher priced markets, as most grocery stores are comprised of strong, high credit tenants Whole Foods, Kroger, Albertsons, Sprouts, Amazon Fresh, etc. Commercial real estate property valuations are driven by a number of factors, but two of the most important are the tenant lease type and the prevailing cap rate(s) in a given market. Cap rates for Q1 recorded at 6.45% while the average lease term dropped to 8 years from 10 years in Q4. Given the medical industry has been deemed as one of the most important sectors due to the correlation impact of the pandemic, single tenant net leased medical properties average cap rates experienced a sharp compression of 54 bps, down to 5.91% in Q4. As the pressures from the Omicron variant persists, more consumers are purchasing goods rather than services. The RealtyRates.com quarterly Developer Survey includes actual and pro-forma discount rates for 22 sell-out property types including subdivisions, PUDs, business and industrial parks, and residential and commercial condominiums and co-ops. For example, multifamily properties tend to have less risk so they command a lower cap rate / higher purchase price. CVS assets have seen an increase in trades as investors seek out to both purchase and sell quality sites in the wake of the brand announcing they will be closing 900 stores, starting in the Spring 2022. In this way, the lender can more easily sell the leasehold in case of default. Lenders also require that neither lessors nor lessees can terminate ground leases due to a casualty without their permission. Will a Recession Lower Your Property Taxes? This represented a 12 basis point decrease when compared to the prior year. Average cap rates for pharmacy net leased assets held steady in Q1 at 6.05%. The average cap rate compressed by 39bps from Q4 to Q1 while the average lease term has remained at 9 years. hbbd```b``a Dr\1 LjI#xXW2=@Oq>"&xHTz/? However, one remedy is a clause that requires the successor lessee to use the lender to finance the new GL. Not only was Assets America successful, they were able to obtain an interest rate lower than going rates. In the first quarter, single-tenant bank ground lease national asking cap rates decreased 12-basis points year-over-year to 5.35%, according to the 2021 Net Lease Bank Ground Lease. As an alternative, a ground lease could theoretically refer to some objective third-party index for long-term capitalization rates for real estate investments at the time of the rent reset. Given the medical industry has been deemed as one of the most important sectors due to the correlation impact of COVID-19, single tenant net leased medical properties saw a slight compression in average cap rates, recording at 6.78% in Q1. At year-end 2021, the single-tenant industrial sector shattered records for both quarterly and annual investment sales volume. They were very straight forward with us and helped a great deal. Typically, a ground lease lasts from 35 to 99 years. Cap rates are holding steady with rates inflating just 5bps in 1Q. But, supply constraints for net leased properties and high investor demand provide conflicting evidence that they may be more stable than the treasury move would suggest. Welcome to CBRE's H2 2021 Cap Rate Survey (CRS), which reflects the views of hundreds of professionals about how sentiment and pricing are changing across multiple dimensions of the commercial real estate market. Cap rates inflated by 32bps from 6.35% in Q4 to 6.67% in Q1. In a net lease, the tenant is responsible for some or all of them, depending on which type of net lease they have signed. Cap rates continue to compressed, falling into the 4% range to 4.87% in Q4. The cap rate compression associated with the banking sector can be best attributed to the investment grade credit of the tenants and the low interest rate environment says Randy Blankstein, President, The Boulder Group. Thank you to Assets America for your highly professional service! They handled all of the complex lease negotiations and contractual paperwork. The company is very capable, I would recommend Assets America to any company requiring commercial financing. Managing Principal, National Net Lease Group & Investment Properties Group, 949.698.1116 If you are an Accredited Real Estate Investor and would like to learn more about our investment opportunities, contact us at (800) 605-4966 or info@fnrpusa.com for more information. As we look ahead, the trajectory of the pandemic and vaccine rollout will undoubtedly shape the 2021 economic landscape. In Q2 2021, properties leased to Chick-Fil-A and McDonald's had cap. Assets America was responsible for arranging financing for two of my multi million dollar commercial projects. With these factors in mind, current market indicators seem to indicate that cap rates will rise, albeit slightly, throughout the year. It does the rest. Another feature is for the lessor to assist the lessee in obtaining necessary licenses, permits and zoning variances. Despite banks being challenged with keeping their distribution channels open due to social distancing logistics and compliance functions that were never designed for remote work, the average cap rate for bank properties sold in Q1 compressed by 50 bps compared to Q4 while average lease term increased by just 3 years. The impact of the pandemic forced the banking industry to dive into new digital banking transformation as bank branches continue to pivot to new business models. His hard work was never ending until the job was done. Just $159 per office (not per user) per year. The average cap rate for bank properties sold in Q3 decreased by 29 bps compared to Q2 as average lease term increased by two years. Lessees want the right to obtain a leasehold mortgage without the lenders consent. Expect this sector to continue to outperform other sectors as flight to safety and economic resistance remains to be a target for investors. The RealtyRates.com quarterly Investor Survey includes national mortgage terms and interest rates, equity requirements, cap and discount rates, reserve requirements, and interim financing rates and terms for 32 income producing property types, plus financial indicators, historical cap rate trend data, and land lease cap and discount rates, likewise by property type. Cap rates for Q4 recorded at 5.64% while the average lease term increased to 10 years from 8 years in Q3. The lender controls insurance proceeds stemming from casualty and condemnation. At year-end 2021, the single-tenant industrial sector shattered records for both quarterly and annual investment sales volume. $^A`Y` `vX\L*#A&4DX "eUu1$c` ^(I l hb```g``g`c` B@16) pM``]0hv=$BjI|4,]#1 40#qUQ$6(+@Z"L$Hc/ "UX.gHo & 17?`z7L/*? P` O%XVL F.1C hbYrP >|[l Typically, the lessee controls and depreciates the improvements during the lease period. The sector is largely dominated by Walgreens transactions. Assets America is a great company to work with. In todays market, its especially important to understand the impact the ongoing pandemic has had on the relationship between length of lease term and capitalization rates across all product types, as well as how the pandemic has affected buyer bias toward certain sectors. Since the beginning of the pandemic, average cap rates have slipped into the high 5.0 percent range and at mid-year 2021, sat at 5.9 percent. First National Realty Partners is one of the countrys leading private equity commercial real estate investment firms. Banks continue to be a focus for investors given the strong credit of the tenants. While there has been a growing demand on homeschool companies, more net lease investors are seeking newly developed education space to perform higher yields as on-campus restrictions fluctuate. Bank properties with the longest leases typically display attractive traits including relocation branches and modern prototypes. Overall, they provided my team with a fantastic and highly professional service! New York State Office of Real Property Services. As the previous paragraph described, they rose slightly in 4Q21, but at the outset of 2022, there is some uncertainty about what will happen. 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