This newly set quarterly record also pushed annual totals to a new high with more than $47.8 billion reported for the year. The yield on the 10-year Treasury note got an extra boost in Q1, as economic conditions have mended and Congress began to roll out a third stimulus payment. endstream endobj startxref The company is very capable, I would recommend Assets America to any company requiring commercial financing. The data has been collected from sources deemed reliable; it may not include confidential and/or proprietary information of the marketplace. The Boulder Group is a boutique, Chicago-based investment real estate services firm specializing in transaction and advisory services for single tenant net lease properties. The GL specifies who owns the land and the improvements, i.e., property that the lessee constructs. A flight to quality locations resulted in about half as many Q1 transactions compared to Q4. This requires special endorsements to the regular owners policy. In addition to the real estate lease, Assets America utilized their decades-long financial expertise to negotiate fantastic rates and terms on our large and very unique multimillion dollar equipment purchase/lease. We were thankful for how promptly and consistently they kept us informed and up to date on each step of our journey. Net Leased C-Store and Gas Station Portfolio Sold. They helped and successfully guided us to beat out 9 other competing offers! In actuality, investor demand for industrial product remains quite strong. Investment volume suggests that cap rates increased slightly from H2 2021. Are Grocery Stores and Supermarkets Good Investments? No hassles. Once the lease expires, the tenant turns over the property improvements to the owner, unless there is an exception. There are four: In most cases, the tenants share of the propertys operating expenses is based on the proportionate amount of space that they rent. Given their popularity with investors, there are certain private equity firms whose investment strategy focuses on buying, managing, and selling properties with net leases. For example, the location, tenant, market, finishes, and condition are additional factors that must be considered in the valuation of a property. Due to the delay issues with supply chain operations and chip shortages, the automotive industry has been directly impacted as available inventory has become very limited. Today's low interest/cap rate environment enables parties to fix rent in a stable, long-term fashion. Cap rates continue to compress in this sector with the average cap rate falling 5bps from 5.98% in Q3 to 5.93% in Q4. Had a lender in place in 30 minutes looking to do the deal. Founded in 1997, the firm has closed over $6 billion of net lease property transactions. Overall, they provided my team with a fantastic and highly professional service! , the tenant pays base rent plus their share of property taxes and insurance. In comparison to the economic depths experience in the spring 2020, the auto industry rebounded in new-vehicle sales. endstream endobj 58 0 obj <>>> endobj 59 0 obj <. 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. 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. In Q2 2021, properties leased to Chick-Fil-A and McDonald's had cap. The region may also see record-setting activity, as with nearly $8.5 billion reported, year-to-date investment activity has already surpassed 2020 annual totals. 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. Single-tenant retail cap rates increased by 11 basis points to 6.02%, while office cap rates remained unchanged in the second quarter. Assets America will arrange financing for commercial projects starting at $20 million, with no upper limit. Typical factors include: In short, anything that raises the risk profile of a property drives cap rates higher, which means that the current market value declines. The first is that the lessor takes possession of all improvements that the lessee made during the lease. Despite the substantial shifts in consumer spending in 2020 and beginning of 2021 caused by COVID-19, US Retail and Food Service increased by 27.7% YOY as of March 2021, proving the resilience of the overall retail industry. It also provides real estate investors with an indication of risk high cap rates mean more risk, which is why investors need a higher return. This may exclude confidential and/or proprietary information. If they are the sole occupant, their share is 100%. One way to extract value from the land is to sign a ground lease. The impact of COVID-19 has forever changed most restaurant business functions. Ground Lease Permanent Loan Amount LTV - Enter the loan-to-value of the ground lease mortgage, and the model will calculate the loan amount. In a ground lease (GL), a tenant develops a piece of land during the lease period. This gives the GL a maximum term of 30 years. There is a direct relationship between a net leased propertys value and its cap rate. A ground lease is more complicated than regular commercial leases. The 10-Year Treasury rate is expected to rise to at least 2.1% by mid-year with the current rate recording at 1.9%. Over the past decade, ALDI has nearly doubled in size. Bank properties with the longest leases typically display attractive traits including relocation branches and modern prototypes. 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. For this report, SRS reviewed Q4 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. 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. 0 Holiday spending helped sentiment rebound up to 70.6, though still a much lower figure than pre-pandemic studies. Regardless of the investor class, bank branch deposits, in-place rental rates and physical real estate locations will be top of mind for investors. We expect to see more of the same in quarters moving forward as developers and investors seek sites suitable for and/or equipped with new drive-thru prototypes for these brands. Market activity greatly surpassed expectations in fourth quarter 2020 as investors rushed to close deals before year-end. Just $159 per office (not per user) per 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. 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. My business partner and I were looking to purchase a retail shopping center in southern California. : Traditionally, rising cap rates are a headwind for property values. Accordingly, as banks implement their modern footprints and mobile banking strategies, bank branch closings have become more common. Average cap rates for pharmacy net leased assets held steady in Q1 at 6.05%. It was great to have such knowledgeable and super-experienced, licensed pros in our corner, pros upon which we could fully rely. hbbd```b``a Dr\1 LjI#xXW2=@Oq>"&xHTz/? The average cap rate compressed by 39bps from Q4 to Q1 while the average lease term has remained at 9 years. Assets America also handled the commercial loan for us. The C-Store/Gas station space remains to be a very active sector of net lease given the internet resistant foundation as well as being labeled as an essential business. They were very straight forward with us and helped a great deal. However, fast food ground leases with shorter amortization periods might have a 20-year lease term. It is helpful to begin by looking at what happened in the fourth quarter of last year. We leverage this experience to identify and present the most promising deals to our investors. A key arrangement is whether the landlord will agree to subordinate his priority on claims if the lessee defaults on its debt. Typically, a ground lease lasts from 35 to 99 years. National Net Lease Group: Q2/2022 Retail Report, National Net Lease Group: Q4 2021 Retail Report, National Net Lease Group: Q4 2021 Medical/Office Building Report, More Drive Thrus (2-3 Lanes) and Smaller Dining Rooms, Contactless Payment/License Plate Recognition, New Contactless Services/Smoothie Making Machines & Salad Robots, Ecommerce Grocery Landscape Transformation. Choose your exact check-in and check-out dates for our monthly apartments for rent, while avoiding being locked into an annual contract. Credit/debit cards processed by Authorize.net. National Net Lease Group: Q2/2022 Retail Report, National Net Lease Group: Q4 2021 Retail Report, National Net Lease Group: Q4 2021 Medical/Office Building Report. patrick.nutt@srsre.com. 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. Fast turn around. 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%. Low cap rates mean less risk, which is why investors are satisfied with a lower return. The 10-Year Treasury continues to climb as the Fed announced they expect to increase interest rates at least four times in 2022 as yields increase due to the pressure of growing inflation. Inflation closed out the year at 6.8%, the highest seen since 1982. If you prefer, you may also subscribe or order offline via US Post. The good news is that the unemployment rate is falling to historic lows, the government is set to invest a record amount in national infrastructure, and wages are rising across the board for workers as companies compete for talent. Despite retail bank headwinds, The Boulder Group cites tenant credit and low interest rate as the primary reasons. Year-End Inflation | Closed at 6.8% highest in nearly 40 years & forecasted to average 7% in 1Q/22, GDP | Expected to grow 4.0% in 2022, down from 6.9% growth in 2021. Get instant access to all of our current and past commercial real estate deals. 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. to a ground lease needs to be refinanced with only 20 years remaining on the ground lease, the expected valuation decline can make this exceptionally difficult. 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. One important aspect of a ground lease is how the lessee will finance improvements to the land. Cap Rate: Understanding Credit Ratings As consumers focus their spending on goods, US retail and food services increase by 0.3% YOY November 2021. A ratchet increase offers the lessee no protection in the face of an economic downturn. All Rights Reserved. Ronny at Assets America has been invaluable to us and definitely is tops in his field. Lessees want the right to obtain a leasehold mortgage without the lenders consent. We were very pleased with Assets Americas expertise and prompt response to our inquiry. Consequently, these properties experienced the greatest amount of compression in the sector.. With growing inflation and expected hikes in US Treasuries in 2022, NNN retail across virtually all asset types saw a compression in cap rates. The advantages of a ground lease include: The disadvantages of a ground lease include: This is a great commercial lease calculator. 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. As we focus on 2021 and beyond, here are a few key indicators to note as the retail industry continues to adapt to pandemic-driven changes. 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. Cap rates in Q1 compressed 3bps compared to Q4. And, very occasionally, the revaluation might direct the appraisers to determine the new rent based generally on market conditions for newly negotiated . The average cap rate remained flat decreasing by just 3 bps from Q3 while the average lease remained at 11 years in Q4. 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. Moreover, Q4 saw the most NNN Medical or Medtail transactions of any other quarter in 2021. At year-end 2021, the single-tenant industrial sector shattered records for both quarterly and annual investment sales volume. 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. Basically, the provision would allow any legal purpose for the property. Recommend them to everyone. Because of this shift in consumer behavior the auto industry is reviving at a faster than expected rate. 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%. Quarterly sales volume was down across all regions of the single-tenant industrial market in first quarter 2021, however, the data is a bit deceiving. Regarding condemnation, lenders insist upon participating in the proceedings. Starting at just 30 days, Blueground's leases are highly flexible should you want to stay in a short term apartment rental in Istanbul, or sign a multi-year long term rental lease. We can help finance the purchase, construction, or renovation of commercial property through our network of private investors and banks. 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. 5 Key Factors That Can Kill a Real Estate Cycle, Avalon Investment Inks HQ Lease at LA-Area Property, Top 10 Markets for Office Deliveries in 2022. Source: Stan Johnson Co. Research, Real Capital Analytics. The properties most likely to be impacted are those at the higher end of the risk spectrum. Cap rates stayed flat recording down by just 1 bps in 4Q to 4.86% while average price per square foot increased by 14.6%. 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. Data is provided for 12 regions and 45 metro market areas encompassing the entire continental U.S. Just $159 per office (not per user) per year. Assets America helped us survive a very difficult time and we most definitely give them 5 stars! Yields also ticked up as initial unemployment claims declined. Banks continue to be a focus for investors given the strong credit of the tenants. These averages include rural, suburban, and urban towers including newly-built 5G towers. The second is that the lessee must demolish the improvements it made. Cap rates for Q4 recorded at 5.64% while the average lease term increased to 10 years from 8 years in Q3. Accordingly, the landlord will usually charge lower rent on unsubordinated ground leases. %PDF-1.7 % The land always reverts to the lessor. At the other end of the spectrum, a property like a hotel has higher risk so they command a higher cap rate / lower purchase price. Bank properties with the longest leases typically display attractive traits including relocation branches and modern prototypes. Beyond that, there are two possibilities for the end of a ground lease. Specifically, 1031 Buyers have largely sought out quality product, settling for lower cap rates while taking advantage of historically low interest rates to garner attractive leveraged returns.Note: this report captures data only for transactions which have reported a sale price and capitalization rate. Industrial outdoor storage facilities are gaining interest with investors, and last mile distribution hubs remain a top favorite. Although single-tenant industrial activity remains far from record-setting levels, the sector continues to outperform within the net lease market and accounted for 47 percent of second quarter 2021s sales volume. Thus, the property deed becomes collateral for the lender if the lessee defaults. Cap Rates for Single Tenant Net Lease Bank Properties Compress; As we look ahead, the trajectory of the pandemic and vaccine rollout will undoubtedly shape the 2021 economic landscape. Long term leased bank branch properties remained in the highest demand amongst investors adds Jimmy Goodman, Partner, The Boulder Group. On a 30-year mortgage, that means a lease term of at least 35 to 40 years. The lender controls insurance proceeds stemming from casualty and condemnation. While there are hundreds of these sites on market, there has been a noticeable decline in the percentage of available discount/dollar assets featuring long lease terms and absolute NNN lease structures. This sector is expected to see secure, positive activity through 2021. Since the pandemic, we havent seen a quarter with more than 10 trades in this asset type. While sales volume decreased from last quarter (16 in Q3 compared to 9 sales in Q4), cap rates for this sector decreased 10 bps to 4.63%. 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