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. Moodys Analytics reports retailers should see notable gains, forecasting 6.2% growth in core retail sales through 2021. Thus, the property deed becomes collateral for the lender if the lessee defaults. Given the essential nature of the grocery sector that provides a safe and stable recession resistant asset, investors continue to look at this sector as stable cash flow. Cap rates tend to move in conjunction with the 10-year treasury suggesting that additional increases are on the horizon, especially for riskier assets. On one hand, interest rates are rising. This resulted in a record-setting quarter, where more than $12.5 billion in sales were reported. There is evidence that cap rates have expanded further since then. While these were slight increases, they remain at historically low levels driven by low interest rates and a significant amount of institutional capital chasing the stable yields that net lease properties can deliver. When viewed through this lens, the year to year cap rate is much less important than investing in a net leased property with strong fundamentals. Casual dining companies that were able to adapt to a fast-casual dining model have been able to have the best success. : A high quality tenant like a national company with a strong credit rating comes with less credit risk, which pushes the cap rate lower. Analysis has accounted for sales as reported to sources deemed reliable in the following sectors: Automotive, Bank, Casual Dining, C-Store, Dollar Stores, QSR, Medical, Pharmacy, Childcare, Fast Casual, Grocery, Big Box, and General Retail (Fitness, Hardware, Furniture, Cellular Stores, etc.). The exact share depends on the specific type of net lease, of which there are four. Performance of c-store/gas stations will likely depend heavily on gasoline prices and sales. It was a rather unusual ground lease, in that it was a 10-year triple-net ground lease with four 5-year options to extend. They obtained fantastic, low, fixed rate insurance money for us. hbbd```b``a Dr\1 LjI#xXW2=@Oq>"&xHTz/? UNITED STATES HQ8144 Walnut Hill Lane, Suite 1200Dallas, TX 75231. Unsurprisingly, lenders want the insurance proceeds to go toward the loan, not property restoration. While there has been a growing demand on homeschool companies due to stay at home orders, more net lease investors are seeking newly developed education space to perform higher yields as on-campus restrictions are lifted. Average cap rates for pharmacy net leased assets held steady in Q1 at 6.05%. Investor Survey. matthew.mousavi@srsre.com, 949.698.1115 2022 Assets America, Inc. All Rights Reserved. For example, when the lease expires, what will happen to the improvements? In a ground lease (GL), a tenant develops a piece of land during the lease period. %PDF-1.7 % The average cap rate remained flat decreasing by just 3 bps from Q3 while the average lease remained at 11 years in Q4. *Note: this report captures data only for transactions which have reported a sale price and capitalization rate. 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. A flight to quality locations resulted in about half as many Q1 transactions compared to Q4. UNITED STATES HQ8144 Walnut Hill Lane, Suite 1200Dallas, TX 75231. Property types include: Apartments; Student Housing; Health Care and Senior Housing; Gas Stations and Convenience Stores; Golf Courses and Country Clubs; Industrial Warehouses and Distributions Centers; Hotels and Motels; Mini Storage Facilities; CBD and Suburban Office Buildings; Retail Shopping Centers; RV and Mobile Home Parks; Schools and Churches; Residential and Office and Industrial Condominiums; Subdivisions and Business and Industrial Parks; and Land Leases. It hasn't changed from 2021 but is up from 2018 when it was $1,220/mo. We leverage this experience to identify and present the most promising deals to our investors. COVID-19 Vaccination | 203.8 million (61%) people in the U.S. are fully vaccinated in Dec/2021, Startups are Growing | 432,000 new business applications in Nov/2021 (up 9% YOY), Evolving Work Force Environment | Remote Work & Space Hybrid Conversions, Liquid Deposits | Increased by 4.8% since Nov/2020. As more investors see urgent cares, dialysis centers, and emergency care centers as sources of stable cash flows, we can expect cap rates to hold steady or compress further in 2022, so long as lender financing remains available. 156 0 obj <>stream hb```g``g`c` B@16) pM``]0hv=$BjI|4,]#1 40#qUQ$6(+@Z"L$Hc/ "UX.gHo & 17?`z7L/*? P` O%XVL F.1C hbYrP >|[l Annual Online Subscriptions include access to both HTML and PDF versions and all previous editions, as well as such other free resources as Excel templates, special reports, software, and investment and financial calculators. We can help finance the purchase, construction, or renovation of commercial property through our network of private investors and banks. The discount dollar sector continues to be one of the most highly sought-after spaces as investors target growth opportunities. By subscribing or purchasing surveys, you agree to our Terms of Use in their entirety including copyright provisions and the restrictions that accompany an ordinary annual subscription which represents a single site license, the use of which is limited to employees of a single office. is one of the countrys leading private equity commercial real estate investment firms. Inflation | expected to rise 2.7% in 2021, up from 1.7% in 2020*, GDP | expected to grow 6.2% in 2021, up from -5.8% growth in 2020*. Retail profit margins are expected to hit a high of 13% in 2021 as retailers are being challenged with an imbalance of demand and available inventory due supply chain issues. Thank you to Assets America for your highly professional service! Professional, fast response time and definitely gets the job done. The topic of financeability is complex and your legal experts will need to wade through the various intricacies. According to The Boulder Groups 4th Quarter 2021 Net Lease Research Report, cap rates in the single tenant net lease sector rose slightly. Expect this sector to continue to outperform other sectors as flight to safety and economic resistance remains to be a target for investors. Secondary. Of the four net lease types described above, single tenant properties with triple net leases are particularly popular with individual investors who want exposure to commercial real estate assets, but not the hassle of managing them on a day to day basis. The second is that the lessee must demolish the improvements it made. His hard work was never ending until the job was done. Ronny is fantastic. COVID-19 Vaccination | 39.6 Million People in the U.S. Have Received Their First Dose, Startups are Growing | 1.1 Million New Business Applications in 4Q/2020, Evolving Work Force Environment | Remote Work & Space Hybrid Conversions, $2 Trillion in Savings Deposits | Americans Accumulated Since February 2020. Tenants with less financial strength push cap rates higher because they present more credit risk. SRS National Net Lease has closed, year to date this year, 180 properties, up approximately 17% from this time in 2021, with over 230 properties under contract, also 14% higher than this time. Cap rates for net lease office remained unchanged at 6.80%. 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 for Q1 recorded at 6.45% while the average lease term dropped to 8 years from 10 years in Q4. And, very occasionally, the revaluation might direct the appraisers to determine the new rent based generally on market conditions for newly negotiated . The key difference between the two is who is responsible for payment of the propertys operating expenses. In return, the landlord asks for higher rent on the property. Conversely, anything that lowers the risk profile drives cap rates lower, which means that the market value of the property rises. Consumers are pivoting to digital purchases, electronic and used car sales. Choose your exact check-in and check-out dates for our monthly apartments for rent, while avoiding being locked into an annual contract. 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. As we enter 2022, the net lease market is working to digest a substantial amount of news, both good and bad. Despite job loseand salary disparities as a result of COVID-19, a significant gain in spending is expected to be seen towards the end of 2021 due to both increased consumer accumulated savings and widespread government stimulus payments. Ultimately, we received exactly the space we needed along with a lower than market per square foot pricing, lease length and end of term options we requested. This may exclude confidential and/or proprietary information. More likely, well see industrial cap rates fluctuate in the current range as the highest-quality assets continue to trade through the end of the year and into 2022. Also, because of COVID and the need to reposition assets, ground leases provide additional flexibility and financing options. However, this may conflict with the standard wording of a ground lease, which gives some control to the lessor. : Net leased properties should be conservatively underwritten with manageable debt loads that have fixed interest rates, strong locations, and high quality tenants. Bank properties with the longest leases typically display attractive traits including relocation branches and modern prototypes. The initial lease terms, on an annual basis, were: Ground leases have their advantages and disadvantages. Just $159 per office (not per user) per year. Assets America also handled the commercial loan for us. Ronny was very friendly and though we were unable to make something happen at the moment he gave me some direction to go. The price and asset value for triple net leased properties are driven by the propertys cap rate. Retailers are continuing to adjust store square footages as some are being transformed into mini fulfillment centers for shoppers to pick up their orders and others are downsizing store footprints for cost efficiently. Typically, a ground lease term extends to at lease 5 to 10 years beyond the leasehold mortgage. 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. Today's low interest/cap rate environment enables parties to fix rent in a stable, long-term fashion. Single-tenant retail cap rates increased by 11 basis points to 6.02%, while office cap rates remained unchanged in the second quarter. The number of properties on the market decreased 3.94%. Great experience. Despite inflation levels, consumers have more disposal income from post pandemic savings and federal stimulus payments. Revenue for C-Stores is expected to grow at an annual rate of 2% until 2026. 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