ATLANTA, GA (May 14, 2012) – The search for safe investments with worthwhile yields has created a huge demand for single-tenant, net-lease investments.
That was the observation of show host Michael Bull (top right photo) and his guests during the most recent episode of “America’s Commercial Real Estate Show,” which provided an enlightening look at the current market for such properties.
These properties usually feature credit-grade tenants with long leases. “Everyone wants safety right now, and single-tenant, net-lease properties typically offer that,” said Bull, the founder and president of Bull Realty.
Investor frustration with low-yielding bonds has helped spark the market for single-tenant, net-lease facilities, said Brad Watt, president of Petra Capital Advisors. Commercial real estateproperty sales totaled $100 billion in 2011, and a whopping $60 billion of that involved single-tenant sites, he added.
Also, the first two quarters of last year saw more single-tenant, net-lease properties change hands than any six-month period in history, Watt added. “We’re seeing strong, strong momentum in single-tenant, net-lease sales,” Watt added.
Single-tenant, net-lease properties featuring drug-store chains such as Walgreens, auto stores like O’Reilly’s or fast-food restaurants such as McDonald’s as tenants are some of the properties most sought by investors, said Virginia Wright (middle left photo), vice president of Bull Realty’s National Net Lease Investment Group.
Consumer demand for discount retail has fueled a growth in the construction of single-tenant facilities featuring chains such as Dollar General and Family Dollar, said Brad Thomas (lower right photo), vice president of capital markets for Bull Realty and a writer for Forbes and Seeking Alpha. “That sector is certainly on fire right now,” he said.
Overall, though, the construction of single-tenant, net-lease properties has not kept up with demand, resulting in increased prices and compressed cap rates, Watt said.
Cap rates for particularly high-quality assets in a good location – such as a drug store in the Northeast – could fetch a cap rate as low as 6.25 percent, Wright said.
Overall, “we’ve seen 100 to 150 basis points of cap rate compression since the start of the recovery in 2009,” Watt said. Cap rates should remain the same or even slightly decrease in the near future, he added.
The next “Commercial Real Estate Show” will be available May 17 and will examine commercial loan-workout strategies.
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