Many investors are looking for a safe place to put their money with the wild fluctuations in the financial market. Stable, predictable investment vehicles are increasingly hard to find, but smart investors do have choices. One of the better choices is to invest in single-tenant, net-leased properties, which many investors also call a corporate bond combined with real estate investments that still make sense today.
Who can invest in single-tenant, net-leased properties?
Net leased properties are appealing to a wide variety of buyers, from high net worth individuals to partnerships to large institutional investors like real estate investment trusts, life insurance companies and pension funds. Net leased properties also are very attractive to investors who need to do 1031 tax-deferred exchanges, or 1031 exchanges for short.
What are the benefits of investing in single-tenant, net-leased properties?
Many people consider single-tenant, net-leased properties as bond-like investments because of their stable, predictable returns. Because tenants commit to long-term leases, there's very little re-leasing risk. Moreover, single-tenant, net-leased investments can be tailored to an investor's risk-reward expectations by choosing tenants with different credit profiles. For example, some tenants are rated by national credit ratings agencies while other tenants have only their previous financial performance to recommend them.
What are the risks related to investing in single-tenant, net-leased properties?
While there are very few risks related to investing in single-tenant, net-leased properties, tenants with non-investment grade credit profiles offer higher levels of risk. But that risk typically provides higher returns as well. And investors always need to think about the "re-leaseability" of a property if the net-tenant were to vacate the space.
How are single-tenant, net-leased assets valued?
Unlike traditional real estate investments whose valued is determined exclusively by the real estate itself, a single-tenant, net-leased property's value is determined by a combination of factors including the tenant's credit, the length of the lease and rental escalations over the term, and, last but not least, the real estate. In markets where the real estate experiences wide valuation swings, a single-tenant, net-leased property will maintain its value because of its bond-like, long-term lease and the credit tenant guaranty for the lease.
When is the best time to invest in a single-tenant, net-lease property?
Net-leased properties are like all-weather tires. They are good investments in both good and bad economic times and in hot and cold real estate markets. Here's why: a single-tenant net lease is guaranteed by a long-term lease at pre-set rental rates. As an owner, you know exactly who will be a tenant in your building, how long that tenant will be there and exactly how much rent they will pay you. That means you will derive a steady income from your investment, regardless of how the economy or real estate market is performing.
http://www.calkain.com/
Saturday, February 26, 2011
NNN Net Lease 7-Eleven Sold In Md
NNN Lease Investment News
Reston, VA, – Calkain Companies, a national real estate investment brokerage firm, recently completed the sale of a 7-Eleven convenient store located in Hagerstown, MD. The 2,620 SF investment property is leased to 7-Eleven, Inc. on a long-term, triple net lease (NNN) basis. The purchaser was a private investor seeking a passive, incoming-producing asset leased to a national tenant.
Calkain's Andrew Fallon, Associate, brokered the transaction between two private clients. The property was "off-market" meaning that the seller was not actively marketing the property for sale. Calkain utilized its extensive database to match the buyer with a willing seller. "Knowing the buyers criteria, it was a matter of finding an attractive property at the right price point," says Fallon. "This property has been a 7-Eleven for a long time, and the corporate guarantee on the lease makes it a bond-like investment with stable, predictable returns" adds Fallon. The asset traded at a 6.25%, illustrating the continued cap rate compression in the net lease market. The 7-Eleven deal represents the type of stable asset that investors are focused on purchasing in the current environment.
The transaction closed within the last thirty days and is recorded in the public record.
Calkain is a full service real estate brokerage firm with a national scope focusing on single and multi tenant retail, industrial, hotel and office net-leased transactions. Calkain has offices in Reston, VA (Washington, DC), Florida, Maryland and Delaware. Additional information about the firm and its listings may be found at http://www.calkain.com/
Reston, VA, – Calkain Companies, a national real estate investment brokerage firm, recently completed the sale of a 7-Eleven convenient store located in Hagerstown, MD. The 2,620 SF investment property is leased to 7-Eleven, Inc. on a long-term, triple net lease (NNN) basis. The purchaser was a private investor seeking a passive, incoming-producing asset leased to a national tenant.
Calkain's Andrew Fallon, Associate, brokered the transaction between two private clients. The property was "off-market" meaning that the seller was not actively marketing the property for sale. Calkain utilized its extensive database to match the buyer with a willing seller. "Knowing the buyers criteria, it was a matter of finding an attractive property at the right price point," says Fallon. "This property has been a 7-Eleven for a long time, and the corporate guarantee on the lease makes it a bond-like investment with stable, predictable returns" adds Fallon. The asset traded at a 6.25%, illustrating the continued cap rate compression in the net lease market. The 7-Eleven deal represents the type of stable asset that investors are focused on purchasing in the current environment.
The transaction closed within the last thirty days and is recorded in the public record.
Calkain is a full service real estate brokerage firm with a national scope focusing on single and multi tenant retail, industrial, hotel and office net-leased transactions. Calkain has offices in Reston, VA (Washington, DC), Florida, Maryland and Delaware. Additional information about the firm and its listings may be found at http://www.calkain.com/
NNN Lease Investment Sale of Largo Applebee’s
NNN Lease Investment News
Calkain Companies Brokers $1.5MM NNN Lease Investment Sale of Largo Applebee’s
Reston, VA, January 24, 2011 – Calkain Companies, a national real estate investment brokerage firm, has procured the sale of a triple net (NNN) lease Applebee’s Restaurant in Largo , Maryland
Rick Fernandez, Managing Director of Calkain Urban Investment Advisors, the urban market division of Calkain Companies, represented the buyer who acquired the property for his private account. “The combination of DC area real estate, national tenant, strong daily traffic and the surrounding retail mix were tailor made for the investor looking to capitalize on the passive nature of NNN real estate investments”, explained Fernandez.
The buyer acquired fee simple interest in the ground and structure and closed on the transaction within the last thirty.
Calkain is a full service real estate brokerage firm with a national scope focusing on single and multi tenant retail, industrial, hotel and office net-leased transactions. Calkain has offices in Reston , VA (Washington, DC), Florida , Maryland and Delaware
David Sobelman
813.282.6000
Friday, February 25, 2011
(NNN) Three Triple Net Lease Sold
NNN Lease Market News
Reston, VA — Calkain Companies', a national real estate investment brokerage firm, has procured the sale of three triple net (NNN) lease investment properties including a Wendy's in Bowie, MD, M&T Bank in Maple Lawn, MD and a CVS in Fairfax County, VA totaling almost $10 million.
Rick Fernandez, Assistant Vice President of Calkain Realty Advisors', the private market division of Calkain Companies, led the marketing and sales for each of the transactions. Fernandez commented, "The Wash DC metro area has national appeal and the combination of strong performance by the tenants and high profile locations made these unique opportunities for the investors." Fernandez generated multiple offers for each of the assets and ultimately completed the sale of each transaction in an obviously challenging market. Jonathan Hipp, President & CEO of Calkain Companies continued, "Rick proved that quality real estate is highly desirable, no matter what market cycle is occurring." In each scenario, appropriate debt was placed on each asset and leveraging the properties with a supportive loan was an essential consideration for each buyer. Fernandez said," The availability of favorable financing is testament to the strength and stability of the Wash DC metro market."
NNN Net Lease Investment Deals are Picking up in Sarasota County
NNN Lease Market News
For the past few months, it has been hard to come up with enough $1 million plus net lease investment deals in Sarasota County to fill a top 10 list. But that wasn’t a problem in January.
Kohl’s Department Stores led all net lease commercial deals in the county with its $3.8 million purchase of a 59,582-square-foot retail building at the intersection on Tamiami Trail and Central Sarasota Parkway.
Next on the list was Plantation Grove Ltd., a Sarasota company managed by Neil Malamud, which bought medical a 13,738-square-foot medical office building at 1427 S. Tamiami Trail in Sarasota for $3.75 million.
The third entry on the list, however, does not count as a sale. It was a transfer of 22,572-square-feet of office space to a bank-owned limited liability company.
Here is a complete list of the top 10 net lease investment deals in Sarasota in January:
By Michael Braga (email)
For the past few months, it has been hard to come up with enough $1 million plus net lease investment deals in Sarasota County to fill a top 10 list. But that wasn’t a problem in January.
Kohl’s Department Stores led all net lease commercial deals in the county with its $3.8 million purchase of a 59,582-square-foot retail building at the intersection on Tamiami Trail and Central Sarasota Parkway.
Next on the list was Plantation Grove Ltd., a Sarasota company managed by Neil Malamud, which bought medical a 13,738-square-foot medical office building at 1427 S. Tamiami Trail in Sarasota for $3.75 million.
The third entry on the list, however, does not count as a sale. It was a transfer of 22,572-square-feet of office space to a bank-owned limited liability company.
Here is a complete list of the top 10 net lease investment deals in Sarasota in January:
By Michael Braga (email)
NNN NET LEASED MEDICAL OFFICE BUILDINGS
NNN Lease Market News
Tampa, FL – Calkain Companies, a national real estate investment brokerage firm, has procured the sale of two separate net leased medical office buildings. One asset was located in Austin, Texas while the second property was situated in Anderson, South Carolina. Both facilities were operated under the brand name Affordable Dentures by Affordable Care Industries, a private company with over 150 locations nationwide. Patrick Nutt, Senior Associate of Calkain Realty Advisors, the private market division of Calkain Companies, represented the seller in both transactions.
The Texas property, located at 8136 Tuscany Way, was built for the tenant in 2008. The purchaser, a locally based Limited Partnership, made the $1,400,000 acquisition through a limited partnership as part of a IRC section 1031 exchange. The Seller, One Acre LLC, was the original owner of the property that constructed the 2,972 square foot build to suit facility for Affordable Care Industries. The purchaser was attracted to the local nature of the facility as well as the long term lease in place.
The South Carolina transaction, sold by a private investor, was purchased by Rutledge Realty Inc, a family owned investment company based in Anderson. The dental facility was located at 3004 North Main Street and was situated on just over 0.5 acres of land. As with the Austin property, this site had a long term lease in place with scheduled rent increases throughout the initial 12 year term.
Nutt commented, "Although Affordable Care is a private company, once we were able to open a dialogue with the tenant, both purchasers were very more than comfortable with the financial strength of the company". Investors generally put an emphasis on the lease terms, credit of the tenant, and underlying real estate, Nutt continued, "beyond the typical underwriting, both purchasers were attracted to the stable nature of the tenant’s medically related business, as well as the specialty build out required for this tenant which shows further commitment to the site from Affordable Care".
Calkain is a full service real estate brokerage firm with a national scope focusing on single and multi tenant retail, industrial, hotel and office net-leased transactions. Calkain has offices in Reston, VA (Washington, DC), Florida, Maryland and Delaware. Additional information about the firm and its listings may be found at http://www.calkain.com/
The Texas property, located at 8136 Tuscany Way, was built for the tenant in 2008. The purchaser, a locally based Limited Partnership, made the $1,400,000 acquisition through a limited partnership as part of a IRC section 1031 exchange. The Seller, One Acre LLC, was the original owner of the property that constructed the 2,972 square foot build to suit facility for Affordable Care Industries. The purchaser was attracted to the local nature of the facility as well as the long term lease in place.
The South Carolina transaction, sold by a private investor, was purchased by Rutledge Realty Inc, a family owned investment company based in Anderson. The dental facility was located at 3004 North Main Street and was situated on just over 0.5 acres of land. As with the Austin property, this site had a long term lease in place with scheduled rent increases throughout the initial 12 year term.
Nutt commented, "Although Affordable Care is a private company, once we were able to open a dialogue with the tenant, both purchasers were very more than comfortable with the financial strength of the company". Investors generally put an emphasis on the lease terms, credit of the tenant, and underlying real estate, Nutt continued, "beyond the typical underwriting, both purchasers were attracted to the stable nature of the tenant’s medically related business, as well as the specialty build out required for this tenant which shows further commitment to the site from Affordable Care".
Calkain is a full service real estate brokerage firm with a national scope focusing on single and multi tenant retail, industrial, hotel and office net-leased transactions. Calkain has offices in Reston, VA (Washington, DC), Florida, Maryland and Delaware. Additional information about the firm and its listings may be found at http://www.calkain.com/
American Realty Capital Realty Capital Trust Purchased Net Lease Investment BB&T Bank Building for $3.85 Million
NNN Lease Market News
New York City-based American Realty Capital Trust Inc. purchased a 3,617-square-foot BB&T Net Lease Investment bank building for $3.85 million. The price equated to $1,065 per square foot.
Guenter Manczur of Calkain Cos. represented the buyer and William Holly of Holly Sime Realty represented the seller. “This acquisition demonstrates the value of well located investment real estate when leased to a high-credit tenant,” Manczur says in a press release. http://www.calkain.com/
Guenter Manczur of Calkain Cos. represented the buyer and William Holly of Holly Sime Realty represented the seller. “This acquisition demonstrates the value of well located investment real estate when leased to a high-credit tenant,” Manczur says in a press release. http://www.calkain.com/
Two Separate Net lease Investment Properties Sold
NNN Lease Market News
Tampa, FL – Calkain Companies, a national real estate investment brokerage firm, recently procured two separate investment sales. The first property, a two-tenant facility in Lakeland, Florida closed on January 4th for a price of $2,175,000. The second closing took place just days later on January 6th when a retail bank branch was purchased for $3,437,000 in the Tampa, Florida suburb of Seffner. Patrick Nutt, Associate Vice President with Calkain Realty Advisors exclusively represented both sellers in the unrelated transactions.
The Lakeland site at 3434 South Florida Avenue is a newly constructed 5,056 square foot building occupied by Chipotle Mexican Grill and Aspen Dental. Strategically located in close proximity to a renovated Wal-Mart Supercenter, the site offers the presence of a full traffic signal, providing superior visibility and access into the property. The purchaser, a foreign investor based in France, paid just over $430 per square foot in this all-cash transaction. When asked about the deal, Nutt commented, "Quality real estate, stable tenancy, and new construction are all hard to come by these days, and this property had all three attributes." The property was only on the market for a few weeks, during which time Patrick was able to generate five written offers for the seller, a Florida based merchant developer.
The second closing was the sale of a free standing retail property occupied by BB&T Bank. The bank branch, located at 1707 South Parsons Avenue, was part of Branch Banking and Trust's recent acquisition of Colonial Bank. The new owner, a private investor, purchased the property at a price reflective of a 6.9% capitalization rate. The 0.86 acre parcel of land is an outparcel to a Sweetbay anchored shopping center. Other retailers in the center included Bank of America, Taco Bell, and a newly constructed CVS pharmacy. Patrick represented both the buyer and seller in this transaction, adding, "The buyer was very attracted to the high credit of the tenant as well as the absolutely passive nature of the lease while the seller was able to achieve a price equal to the peak of the market in 2007, offering a transaction where both parties were easily able to achieve their investment goals."
Calkain is a full service real estate brokerage firm with a national scope focusing on single and multi tenant retail, industrial, hotel and office net-leased transactions. Calkain has offices in Reston, VA (Washington, DC), Florida, Maryland and Delaware. Additional information about the firm and its listings may be found at http://www.calkain.com/
The Lakeland site at 3434 South Florida Avenue is a newly constructed 5,056 square foot building occupied by Chipotle Mexican Grill and Aspen Dental. Strategically located in close proximity to a renovated Wal-Mart Supercenter, the site offers the presence of a full traffic signal, providing superior visibility and access into the property. The purchaser, a foreign investor based in France, paid just over $430 per square foot in this all-cash transaction. When asked about the deal, Nutt commented, "Quality real estate, stable tenancy, and new construction are all hard to come by these days, and this property had all three attributes." The property was only on the market for a few weeks, during which time Patrick was able to generate five written offers for the seller, a Florida based merchant developer.
The second closing was the sale of a free standing retail property occupied by BB&T Bank. The bank branch, located at 1707 South Parsons Avenue, was part of Branch Banking and Trust's recent acquisition of Colonial Bank. The new owner, a private investor, purchased the property at a price reflective of a 6.9% capitalization rate. The 0.86 acre parcel of land is an outparcel to a Sweetbay anchored shopping center. Other retailers in the center included Bank of America, Taco Bell, and a newly constructed CVS pharmacy. Patrick represented both the buyer and seller in this transaction, adding, "The buyer was very attracted to the high credit of the tenant as well as the absolutely passive nature of the lease while the seller was able to achieve a price equal to the peak of the market in 2007, offering a transaction where both parties were easily able to achieve their investment goals."
Calkain is a full service real estate brokerage firm with a national scope focusing on single and multi tenant retail, industrial, hotel and office net-leased transactions. Calkain has offices in Reston, VA (Washington, DC), Florida, Maryland and Delaware. Additional information about the firm and its listings may be found at http://www.calkain.com/
Triple-net-lease Properties Returns are More Secure
NNN Lease Market
Triple-net-lease properties returns are more favorable and more secure than some traditional investment vehicles
Despite the economic downturn and the fact that many aspects of the commercial real estate industry still need time to season before true recovery takes place, some niche segments of the market are actually performing extremely well. In fact, some are at the same level they reached at the height of the market.
Triple-net-lease investment properties, in particular, may be a true bright spot on the commercial investment horizon. Here's why.
Triple net lease properties are probably some of the most commonly noticed commercial real estate in the market. Most of the assets are drugstores, bank branches, restaurants, home-improvement centers and the like. These are core assets that have daily users and requirements. Typically, they are single-tenant buildings where, through the lease structure, the tenant is responsible for the taxes, insurance, and maintenance and management of the building - the three "nets."
Investors have a strong appetite for passive income in today's market, as there are few alternatives for them to receive a return that is equal to or better than what net lease assets provide. Additionally, it seems that lenders are becoming more comfortable with the asset type - many transactions in today's market are using some sort of lender-provided leverage.
Mortgage brokers are an integral part of the lending process for net lease investments, especially because one lender won't provide the best rate and terms for a particular investor every time. Brokers who want to increase their business in this asset class should understand what goes into funding triple net lease properties and be aware of the market's emerging trends.
Underwriting the tenant
Like in any underwriting process, lenders consider the real estate's value first. With net lease investments, however, the current tenant's credit also is weighed heavily.
Because tenants occupying single-tenant buildings typically sign long leases - sometimes for as many as 25 years or more - lenders want to know who is actually paying the rent to support the property for that long. Therefore, the underwriting of the tenant's credit becomes a key factor for lenders considering net leased assets.
There is some standardization for rating tenants, which comes primarily from credit-rating agencies such as Standard & Poor's (S&P), Moody's Investor Service, Fitch Ratings, etc. These agencies each have their own alphanumeric system to report how a particular company is performing from a credit perspective. S&P, for instance, has ratings that begin at AAA as the best-possible credit and incrementally go down to D.
In today's lending environment, net lease tenants with an S&P credit rating of BBB or greater have a better chance of getting a lender's attention because they are seen to be less risky. Tenants with credit ratings less than BBB are perceived to be more likely to default over the term of the lease.
In fact, a Moody's study quantified this phenomenon, stating that companies with a BBB- credit rating have a 4-percent chance of defaulting on their lease within any five-year period. Conversely, a company that has rating of B- has a 43-percent chance of defaulting on its lease within the same period. As a matter of comparison, companies with AAA ratings have a 0.15-percent chance of defaulting. It is pretty clear why lenders focus their underwriting on the potential tenant's credit.
Funding net leases
Although mortgage brokers unfamiliar with this asset class may think this type of debt comes from sophisticated sources housed in a class-A skyscraper on Wall Street, the vast majority of loans for net lease investments come from banks.
Real Capital Analytics, a market-research company, recently reported that 51 percent of single-tenant acquisition transactions completed to-date in 2010 came from a traditional bank. It also reported, however, that 40 percent came from a national bank and 11 percent was from a regional or local bank.
It seems that when a recession hits, the lending environment changes to a point that sophisticated financing instruments are no longer needed to drive the market. Instead, individual relationships between borrowers, lenders and their conduits (i.e., mortgage brokers) are the primary source of transaction volume.
In addition, Real Capital Analytics reported that 30 percent of the transactions completed this past year used existing financing that was assumed by a new buyer. Anecdotally, investors active in the market at the beginning of this year did not have as many sources of capital. Those who made purchases that required financing were given financing quotes that were outrageous and did not allow the transaction to make sense to the investor. Therefore, they assumed the debt from the previous owner because the terms and interest rates were more favorable than the market at that time. Sourcing debt for net lease investments is becoming easier, however.
Gaining market share
Single-tenant properties have become so popular this past year that they comprised roughly 35 percent of all commercial real estate transactions completed in the first two quarters of the year, according to data from Real Capital Analytics. By comparison, when the market was at its peak in 2007, only 20 percent of all transactions included the asset class.
With more than $425 billion in total commercial sales in 2007 - which included $85 billion in single-tenant sales - compared to $35 billion in total sales for these past first two quarters - which included $12.25 billion in single-tenant sales - it is apparent that with fewer transactions, more people are steering toward stabilized and lower-risk properties.
Capitalization rates - or cap rates - are a quick snapshot of an investor's return. In today's market, cap rates are roughly 6 percent to 8 percent for creditworthy properties. When a basic comparison is made using other passive investments, it is fairly clear why investors are seeking to put their capital to work in the property type.
Most investors who have cash available to make passive, nonspeculative investments are using basic money-market or savings accounts to hold the cash. When returns for those investment vehicles hover around 1 percent, the investor is motivated to find alternative investments for that capital while also maintaining a steady and safe cash flow over a period of time. Net lease properties are filling that void.
Tracking trends
There are different periods where lenders will have a strong appetite for a particular tenant and less so for other tenants, and this changes over time. Brokers who stay on top of these kinds of trends in their markets and leverage their relationships with lenders can help clients find the best rates and terms at any particular moment.
As an example, Walgreen Co. drugstores - a common triple net lease tenant - have an S&P credit rating of A+. As such, lenders are comfortable with these stores' credit and viability as a longstanding tenant. At the beginning of this year, however, there were more than 450 Walgreens stores available for purchase as net lease investments.
Because most investors need financing to purchase a single store and the average sale price for a Walgreens store is about $5 million, mortgage brokers were engaged to find the best debt. Lenders, however, found that they had too many Walgreens loans on their balance sheets and started to slow down the distribution of debt for that tenant. Brokers show their value in these scenarios by finding other lending sources that aren't as saturated with one particular tenant.
Supply and demand dictates the rate and terms of a particular tenanted-occupied building. Because of their popularity, Walgreens investments typically garner a higher interest rate. Other companies that have S&P credit ratings of A+ and similar lease terms, but higher price tags and therefore fewer buyers may have substantially lower interest rates.
Lenders, therefore, dictate rates and terms based not only on the tenant's credit, but also on subjective factors that move markets in different directions at different times. Mortgage brokers should be cognizant of these trends and have their arsenal of lending sources available for their clients as market indicators change.
Net lease properties have proven to be a strong asset class in this recovery -driven market. Lenders are seeking assets for their portfolios to maintain strong balance sheets. It's always better to have a stabilized net lease investment earning income for the lender and the investor on the books as opposed to vacant, speculative land that likely has an undetermined value for future development.
Mortgage brokers who focus on this asset class can take advantage of the new demand for these properties, as they are some of the only properties getting funded with rates and terms last seen at the height of the market. http://www.calkain.com/
Triple-net-lease investment properties, in particular, may be a true bright spot on the commercial investment horizon. Here's why.
Triple net lease properties are probably some of the most commonly noticed commercial real estate in the market. Most of the assets are drugstores, bank branches, restaurants, home-improvement centers and the like. These are core assets that have daily users and requirements. Typically, they are single-tenant buildings where, through the lease structure, the tenant is responsible for the taxes, insurance, and maintenance and management of the building - the three "nets."
Investors have a strong appetite for passive income in today's market, as there are few alternatives for them to receive a return that is equal to or better than what net lease assets provide. Additionally, it seems that lenders are becoming more comfortable with the asset type - many transactions in today's market are using some sort of lender-provided leverage.
Mortgage brokers are an integral part of the lending process for net lease investments, especially because one lender won't provide the best rate and terms for a particular investor every time. Brokers who want to increase their business in this asset class should understand what goes into funding triple net lease properties and be aware of the market's emerging trends.
Underwriting the tenant
Like in any underwriting process, lenders consider the real estate's value first. With net lease investments, however, the current tenant's credit also is weighed heavily.
Because tenants occupying single-tenant buildings typically sign long leases - sometimes for as many as 25 years or more - lenders want to know who is actually paying the rent to support the property for that long. Therefore, the underwriting of the tenant's credit becomes a key factor for lenders considering net leased assets.
There is some standardization for rating tenants, which comes primarily from credit-rating agencies such as Standard & Poor's (S&P), Moody's Investor Service, Fitch Ratings, etc. These agencies each have their own alphanumeric system to report how a particular company is performing from a credit perspective. S&P, for instance, has ratings that begin at AAA as the best-possible credit and incrementally go down to D.
In today's lending environment, net lease tenants with an S&P credit rating of BBB or greater have a better chance of getting a lender's attention because they are seen to be less risky. Tenants with credit ratings less than BBB are perceived to be more likely to default over the term of the lease.
In fact, a Moody's study quantified this phenomenon, stating that companies with a BBB- credit rating have a 4-percent chance of defaulting on their lease within any five-year period. Conversely, a company that has rating of B- has a 43-percent chance of defaulting on its lease within the same period. As a matter of comparison, companies with AAA ratings have a 0.15-percent chance of defaulting. It is pretty clear why lenders focus their underwriting on the potential tenant's credit.
Funding net leases
Although mortgage brokers unfamiliar with this asset class may think this type of debt comes from sophisticated sources housed in a class-A skyscraper on Wall Street, the vast majority of loans for net lease investments come from banks.
Real Capital Analytics, a market-research company, recently reported that 51 percent of single-tenant acquisition transactions completed to-date in 2010 came from a traditional bank. It also reported, however, that 40 percent came from a national bank and 11 percent was from a regional or local bank.
It seems that when a recession hits, the lending environment changes to a point that sophisticated financing instruments are no longer needed to drive the market. Instead, individual relationships between borrowers, lenders and their conduits (i.e., mortgage brokers) are the primary source of transaction volume.
In addition, Real Capital Analytics reported that 30 percent of the transactions completed this past year used existing financing that was assumed by a new buyer. Anecdotally, investors active in the market at the beginning of this year did not have as many sources of capital. Those who made purchases that required financing were given financing quotes that were outrageous and did not allow the transaction to make sense to the investor. Therefore, they assumed the debt from the previous owner because the terms and interest rates were more favorable than the market at that time. Sourcing debt for net lease investments is becoming easier, however.
Gaining market share
Single-tenant properties have become so popular this past year that they comprised roughly 35 percent of all commercial real estate transactions completed in the first two quarters of the year, according to data from Real Capital Analytics. By comparison, when the market was at its peak in 2007, only 20 percent of all transactions included the asset class.
With more than $425 billion in total commercial sales in 2007 - which included $85 billion in single-tenant sales - compared to $35 billion in total sales for these past first two quarters - which included $12.25 billion in single-tenant sales - it is apparent that with fewer transactions, more people are steering toward stabilized and lower-risk properties.
Capitalization rates - or cap rates - are a quick snapshot of an investor's return. In today's market, cap rates are roughly 6 percent to 8 percent for creditworthy properties. When a basic comparison is made using other passive investments, it is fairly clear why investors are seeking to put their capital to work in the property type.
Most investors who have cash available to make passive, nonspeculative investments are using basic money-market or savings accounts to hold the cash. When returns for those investment vehicles hover around 1 percent, the investor is motivated to find alternative investments for that capital while also maintaining a steady and safe cash flow over a period of time. Net lease properties are filling that void.
Tracking trends
There are different periods where lenders will have a strong appetite for a particular tenant and less so for other tenants, and this changes over time. Brokers who stay on top of these kinds of trends in their markets and leverage their relationships with lenders can help clients find the best rates and terms at any particular moment.
As an example, Walgreen Co. drugstores - a common triple net lease tenant - have an S&P credit rating of A+. As such, lenders are comfortable with these stores' credit and viability as a longstanding tenant. At the beginning of this year, however, there were more than 450 Walgreens stores available for purchase as net lease investments.
Because most investors need financing to purchase a single store and the average sale price for a Walgreens store is about $5 million, mortgage brokers were engaged to find the best debt. Lenders, however, found that they had too many Walgreens loans on their balance sheets and started to slow down the distribution of debt for that tenant. Brokers show their value in these scenarios by finding other lending sources that aren't as saturated with one particular tenant.
Supply and demand dictates the rate and terms of a particular tenanted-occupied building. Because of their popularity, Walgreens investments typically garner a higher interest rate. Other companies that have S&P credit ratings of A+ and similar lease terms, but higher price tags and therefore fewer buyers may have substantially lower interest rates.
Lenders, therefore, dictate rates and terms based not only on the tenant's credit, but also on subjective factors that move markets in different directions at different times. Mortgage brokers should be cognizant of these trends and have their arsenal of lending sources available for their clients as market indicators change.
Net lease properties have proven to be a strong asset class in this recovery -driven market. Lenders are seeking assets for their portfolios to maintain strong balance sheets. It's always better to have a stabilized net lease investment earning income for the lender and the investor on the books as opposed to vacant, speculative land that likely has an undetermined value for future development.
Mortgage brokers who focus on this asset class can take advantage of the new demand for these properties, as they are some of the only properties getting funded with rates and terms last seen at the height of the market. http://www.calkain.com/
DC Area NNN Lease Investment Sale
Reston, VA, —Calkain Companies’, a national real estate investment brokerage firm, has procured the sale of two triple net (NNN) lease investment properties in Fulton, MD. The SunTrust Bank and M&T Bank Ground Leases in Maple Lawn (Fulton), MD were sold to private investors seeking passive and long-term investments. Closing price of the sale was $8.2MM.
Rick Fernandez, Assistant Vice President and Jeff Bogart, Tax Strategy Specialist, both of Calkain Realty Advisors, the private market division of Calkain Companies, led the marketing and sale of the transactions. Fernandez commented, “The strong market demographics, high profile locations and financial strength of the tenants provided sound and stable investment opportunities for the investors.” The properties commanded a premium price due to the high credit worthiness of the tenants and the above average rent increases during the terms of the lease. Fernandez and Bogart generated multiple offers for the asset and ultimately completed the sale in an obviously challenging market. Jonathan Hipp, President & CEO of Calkain Companies continued, “Calkain proved that quality real estate is highly desirable, no matter what market cycle is occurring.” Bogart commented,” The availability of favorable financing for this transaction and in this market cycle is testament to the strength and stability of the Washington, DC metro market.”
Maple Lawn is an upscale mixed use development outside of the Nation’s Capitol that provides living, working and shopping conveniences. With over 1,340 homes plotted for the development, the long term benefits of the investments are greatly achieved.
The transaction is recorded in the public record.
Calkain Companies is a privately held, national real estate brokerage and advisory firm that specializes in single and multi-tenant retail, industrial, and office net leased transactions. Calkain has offices in Reston, VA (Washington, DC), Tampa, FL, and McHenry, MD.
Rick Fernandez, Assistant Vice President and Jeff Bogart, Tax Strategy Specialist, both of Calkain Realty Advisors, the private market division of Calkain Companies, led the marketing and sale of the transactions. Fernandez commented, “The strong market demographics, high profile locations and financial strength of the tenants provided sound and stable investment opportunities for the investors.” The properties commanded a premium price due to the high credit worthiness of the tenants and the above average rent increases during the terms of the lease. Fernandez and Bogart generated multiple offers for the asset and ultimately completed the sale in an obviously challenging market. Jonathan Hipp, President & CEO of Calkain Companies continued, “Calkain proved that quality real estate is highly desirable, no matter what market cycle is occurring.” Bogart commented,” The availability of favorable financing for this transaction and in this market cycle is testament to the strength and stability of the Washington, DC metro market.”
Maple Lawn is an upscale mixed use development outside of the Nation’s Capitol that provides living, working and shopping conveniences. With over 1,340 homes plotted for the development, the long term benefits of the investments are greatly achieved.
The transaction is recorded in the public record.
Calkain Companies is a privately held, national real estate brokerage and advisory firm that specializes in single and multi-tenant retail, industrial, and office net leased transactions. Calkain has offices in Reston, VA (Washington, DC), Tampa, FL, and McHenry, MD.
NNN Lease Investment Sale of North Arlington Walgreens
Calkain Companies Brokers $7.3MM NNN Lease Investment Sale of North Arlington Walgreens
Reston, VA –Calkain Companies, a national real estate investment brokerage firm, has procured the sale of a new triple net (NNN) lease Walgreen's in North Arlington, Virginia at a 6.8% cap rate.
Washington-area pharmacies have slowly crept forward to grab increased attention from investors spanning the world.
In a bid to scoop up smaller real estate gems, known as triple-net-lease properties, some investors have been smitten by the burgeoning drugstore sector. By July 1, the sector's dollar value in trades had already reached two-thirds of last year's total volume.
In triple-net leases, tenants — not landlords — hold full responsibility for managing or maintaining the space and paying its taxes or insurance. While those leases are often held by freestanding dollar stores, banks, casual dining and fast-food outlets, drugstores have weathered the recession to emerge as one of the triple-net sector's most stable industries.
Investors say drugstores' creditworthiness, central locations, 25-year-plus lease terms and newer buildings, typically no more than 10 years old, make them alluring prospects.
Rick Fernandez, Managing Director of Calkain Urban Investment Advisors, the urban market division of Calkain Companies, represented the seller in the transaction. "NNN investment property in the DC Metro area is hard to find and quality real estate such as this North Arlington Walgreen's is harder still," explained Fernandez. "The intrinsic value of the real estate, strong credit of the tenant and the international appeal and esteem with which the DC Metro area is held by investors across the globe offered a unique opportunity to the investor," commented Jonathan Hipp President and CEO of Calkain Companies. The buyer, a group of international investors, acquired fee simple interest in the ground and structure.
The transaction closed within the last thirty days and was recorded in the public record.
Reston, VA –Calkain Companies, a national real estate investment brokerage firm, has procured the sale of a new triple net (NNN) lease Walgreen's in North Arlington, Virginia at a 6.8% cap rate.
Washington-area pharmacies have slowly crept forward to grab increased attention from investors spanning the world.
In a bid to scoop up smaller real estate gems, known as triple-net-lease properties, some investors have been smitten by the burgeoning drugstore sector. By July 1, the sector's dollar value in trades had already reached two-thirds of last year's total volume.
In triple-net leases, tenants — not landlords — hold full responsibility for managing or maintaining the space and paying its taxes or insurance. While those leases are often held by freestanding dollar stores, banks, casual dining and fast-food outlets, drugstores have weathered the recession to emerge as one of the triple-net sector's most stable industries.
Investors say drugstores' creditworthiness, central locations, 25-year-plus lease terms and newer buildings, typically no more than 10 years old, make them alluring prospects.
Rick Fernandez, Managing Director of Calkain Urban Investment Advisors, the urban market division of Calkain Companies, represented the seller in the transaction. "NNN investment property in the DC Metro area is hard to find and quality real estate such as this North Arlington Walgreen's is harder still," explained Fernandez. "The intrinsic value of the real estate, strong credit of the tenant and the international appeal and esteem with which the DC Metro area is held by investors across the globe offered a unique opportunity to the investor," commented Jonathan Hipp President and CEO of Calkain Companies. The buyer, a group of international investors, acquired fee simple interest in the ground and structure.
The transaction closed within the last thirty days and was recorded in the public record.
Commercial NNN Lease Terms
NNN Lease Terms
General Terms and Definitionsin describing the manner in which services and expenses are paid by the tenant to the landlord; different commercial leasing terminologies are used. Though there is no limitation to the commonly-used terms in a contract, there are some common terms that are found in the majority of commercial real estate contracts. These include:
Net lease - As the term indicates, this is a rent payment that applies exclusively to real estate. This means that other potential operating expenses such as estate taxes, insurance, utilities, etc. are not incorporated in the rental amount as opposed to A Triple Net Lease is also known as Net Net Net Lease or NNN Lease. This is a type of net lease in which the tenant pays all or part of the taxes, insurance, and maintenance associated with use of the property. These fees are paid in addition to the tenant's regular monthly rent.
Triple Net leases almost always favor the landlord and should be carefully negotiated to limit how much the landlord can increase NNN fees each year.
Gross lease - This usually means that some of the operating expenses are included in the tenant’s payment, such as the real estate taxes. Optionally, building insurance and/or common area maintenance (CAM) could be included as well. Tenants should ask what this amount includes especially any of the escalation clauses included in the agreement.
Modified net lease - This is a term that is a compromise of the triple net lease and the gross lease terms. Usually, this is the term used when both parties enter into an agreement to split maintenance expenses, while the insurance and tax expenses would be shouldered by the tenant. This type of contract term is a common one for either side to easily consider because of its ability to be flexible and creative.
Full service lease - This term implies that the tenant’s payment incorporates all of the occupancy cost. This typically includes base rent, insurance, C.A.M., real estate taxes and even garbage disposal. In some instances, a full service lease may also include an additional charge for electricity.
Net lease - As the term indicates, this is a rent payment that applies exclusively to real estate. This means that other potential operating expenses such as estate taxes, insurance, utilities, etc. are not incorporated in the rental amount as opposed to A Triple Net Lease is also known as Net Net Net Lease or NNN Lease. This is a type of net lease in which the tenant pays all or part of the taxes, insurance, and maintenance associated with use of the property. These fees are paid in addition to the tenant's regular monthly rent.
Triple Net leases almost always favor the landlord and should be carefully negotiated to limit how much the landlord can increase NNN fees each year.
Gross lease - This usually means that some of the operating expenses are included in the tenant’s payment, such as the real estate taxes. Optionally, building insurance and/or common area maintenance (CAM) could be included as well. Tenants should ask what this amount includes especially any of the escalation clauses included in the agreement.
Modified net lease - This is a term that is a compromise of the triple net lease and the gross lease terms. Usually, this is the term used when both parties enter into an agreement to split maintenance expenses, while the insurance and tax expenses would be shouldered by the tenant. This type of contract term is a common one for either side to easily consider because of its ability to be flexible and creative.
Full service lease - This term implies that the tenant’s payment incorporates all of the occupancy cost. This typically includes base rent, insurance, C.A.M., real estate taxes and even garbage disposal. In some instances, a full service lease may also include an additional charge for electricity.
Thursday, February 24, 2011
NNN Lease Market News
Realty Income Corporation (Realty Income), The Monthly Dividend Company ® , (NYSE:O), today announced that its Board of Directors has declared an increase in the Company´s common stock monthly cash dividend to $0.14425 per share from $0.1439375 per share. The dividend is payable on January 18, 2011 to shareholders of record as of January 3, 2011.
Realty Income, The Monthly Dividend Company ® , is a New York Stock Exchange real estate company dedicated to providing shareholders with dependable monthly income. To date the Company has declared 486 consecutive common stock monthly dividends throughout its 41-year operating history and increased the dividend 60 times since Realty Income´s listing on the New York Stock Exchange in 1994. The monthly income is supported by the cash flow from over 2,400 properties owned under long-term lease agreements with regional and national retail chains and other commercial enterprises. The Company is an active buyer of net-leased properties nationwide.
Realty Income Corporation (Realty Income), The Monthly Dividend Company ® , (NYSE:O), today announced that its Board of Directors has declared an increase in the Company´s common stock monthly cash dividend to $0.14425 per share from $0.1439375 per share. The dividend is payable on January 18, 2011 to shareholders of record as of January 3, 2011.
Realty Income, The Monthly Dividend Company ® , is a New York Stock Exchange real estate company dedicated to providing shareholders with dependable monthly income. To date the Company has declared 486 consecutive common stock monthly dividends throughout its 41-year operating history and increased the dividend 60 times since Realty Income´s listing on the New York Stock Exchange in 1994. The monthly income is supported by the cash flow from over 2,400 properties owned under long-term lease agreements with regional and national retail chains and other commercial enterprises. The Company is an active buyer of net-leased properties nationwide.
NRF Hit a New 52-Week High Thursday
NNN Lease News
Northstar Realty Finance Corporation (NYSE:NRF) hit a new 52-week high Thursday as it traded at $5.42 compared with its previous 52-Week high of $5.35. Northstar Realty Finance is changing hands at $5.42 with 107,987 shares traded as of 9:32 a.m. ET. Average volume has been 521,500 shares over the past 30 days.
Northstar Realty Finance has a market cap of $395.1 million and is part of the financial sector and real estate industry. Shares are up 8% year to date as of the close of trading on Wednesday.
Operates as an internally-managed commercial real estate company that makes fixed income, structured finance and net lease investments in real estate assets. The company intends to qualify as a REIT.
TheStreet Ratings rates Northstar Realty Finance as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally poor debt management and disappointing return on equity. You can view the full Northstar Realty Finance Ratings Report.
Northstar Realty Finance Corporation (NYSE:NRF) hit a new 52-week high Thursday as it traded at $5.42 compared with its previous 52-Week high of $5.35. Northstar Realty Finance is changing hands at $5.42 with 107,987 shares traded as of 9:32 a.m. ET. Average volume has been 521,500 shares over the past 30 days.
Northstar Realty Finance has a market cap of $395.1 million and is part of the financial sector and real estate industry. Shares are up 8% year to date as of the close of trading on Wednesday.
Operates as an internally-managed commercial real estate company that makes fixed income, structured finance and net lease investments in real estate assets. The company intends to qualify as a REIT.
TheStreet Ratings rates Northstar Realty Finance as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally poor debt management and disappointing return on equity. You can view the full Northstar Realty Finance Ratings Report.
The Net Lease Market and Urban Investments Seem Set to Grow
NNN Lease Market News
The net lease market such as retail, sale leasebacks and urban investments seem set to grow. Numbers and analysis from the first quarter of 2011 point to better days and more opportunities ahead.
Retail
Retail sales in the first quarter 2010 are up 1.9% over the previous year. Retail transaction volume totaled $3.1 billion for the 1Q 2010, which is a steady improvement from $2.2 billion in the same period last year. Furthermore, according to a major commercial real estate magazine “investors are showing strong interest in well-stabilized retail properties that generate consistent cash flows”. This description fits perfectly with net lease investments, which are defined by their stability.
Sale Leasebacks
It has been estimated that there is at least $1 billion in corporate owned essential real estate and according to RW Baird “strong corporate demand for sale-leaseback transactions”. If only a fraction of this $1 trillion were to enter the market, it would be a huge boon for net leases. Sale-leasebacks, which are almost always structured as net leases, offer corporations a chance to pull vital equity out of their real estate and enhance current operations. The real estate is sold and a long term lease is signed which leases back the property. Sale leasebacks have already provided the basis for many net lease transactions in the last two years and that trend looks to continue to pick up steam.
Urban Investments
There has been a lot of talk about the upward trend in urban investments. Walgreens purchased Duane Reade and their 258 New York metro area locations for $1 billion and those leases have been recently valued at $74 million. The German group, GLL Real Estate Partners also entered the urban market by purchasing 14,000 sq. ft. of New York retail condominiums from Hines. The urban market is one the most attractive today because it ensures a properties close proximity to large populations. As a result, net lease urban properties have increasingly been in demand.
British Columbia commercial real estate investment market as dollar volume hits nearly $2 billion
NNN Lease Market News
VANCOUVER, Feb. 24 /CNW/ - Building on the record-setting first half of 2010, dollar volume in British Columbia's commercial real estate investment market reached $1.946 billion for the year - a new high-water mark for the province.
For the first time in the province's history, commercial real estate investment volume approached $2 billion in a 12-month period as 99 sales transactions completed. In the second half of 2010, the total volume of office, retail and industrial property sales was $920 million, almost matching the record dollar volume of $1.026 billion set in the first half. Total 2010 dollar volume easily surpassed 2009 and 2008 dollar volumes of $1.36 billion and $1.27 billion, respectively. The previous record was $1.53 billion in 2004.
These are some of the key trends noted in Avison Young's Year-End 2010 British Columbia Real Estate Investment Review, released today. The semi-annual report tracks office, retail and industrial investment property sales in BC greater than $5 million.
"All-time high dollar volume and transaction levels were indicative of the low cost of debt and redeployment of capital accumulated in the wake of the financial downturn of 2008," comments Avison Young Principal Bob Levine.
He notes that no single transaction skewed dollar volumes in any asset class in 2010 as had been the case in 2009. The record 2010 sales dollar volume, which was reached after a prolonged period of capitalization rate compression, can be attributed to the market's reinforced underpinnings, with investors showing much more confidence.
"Improved debt markets with fewer restrictions and reallocation of capital to targeted asset type investments propelled 2010 to new heights of commercial real estate activity in BC," he says. "Private purchasers were dominant in all asset classes more so than cash buyers such as pension funds, life insurance companies and REITs."
The greater availability of retail assets in 2010 boosted overall deal velocity and dollar volume. Comprising 40% (40 of 99) of all 2010 transactions and generating 59% ($1.148 billion) of total dollar volume, the retail asset class was by far the most active for all buyer types, particularly private and institutional investors.
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