NNN Lease Market One of the Hottest Deals

NNN Lease Market News

The market for urban retail properties has witnessed a sharp resurgence in the past couple months. In-fact, we are seeing cap rates and prices that are reminiscent of the markets heyday back in 2005-2007. There is such a strong demand for these properties that they are routinely receiving multiple offers. This trend is being fueled by a number of factors such as inherently strong real estate quality, low interest rates, and a surplus of investors willing to deploy capital.

It is no secret that a great deal of the net lease market’s recent success is due to the security it offers investors. Net lease properties offer investors reliable income streams with little to no active management. These qualities are only enhanced in the context of urban condos. Unlike properties located in tertiary markets, urban retail can depend on higher foot traffic and a greater intrinsic value. This serves to add an extra layer of security to the investment – should a tenant leave it will not be hard to replace them.

Investors know this and are actively seeking these properties. Low interest rates coupled with a surplus of capital (that had previously been sitting on the sidelines) have led to a perfect storm of rising prices and falling cap rates. Likewise, many sellers are reluctant to sell because they would face the same problem in redeploying their capital. As demand continues to gain momentum it is likely investors will dig even deeper for tenant and location, resulting in downward pressure on cap rates.

http://www.globest.com/blogs

Real Estate Conference in the Dark

NNN Lease Market News

The lights went out during the National Association of Real Estate Investment Trusts annual REIT Week conference at the Hilton hotel in Midtown Manhattan. New York City police said that a transformer in the basement of the hotel experienced problems Wednesday afternoon, leading to partial power loss at the building. An electrician suffered a minor burn to his finger, police said.

Although there wasn’t an evacuation, many guests and workers crowded in the lobby and in front of the hotel where fire trucks and police vehicles were parked. But these  real-estate executives and experts didn’t let a building problem disrupt their discussions about, well, how to make buildings more profitable.

The afternoon presentations continued on the second floor with auxiliary lighting. The outage even provided fodder for some of the speakers. “This is a memorable moment,” joked Harvard economist Kenneth Rogoff who was giving the keynote speech at the conference’s luncheon in the Grand Ballroom when the outage occurred.

NNN Cap Rates Market Report

NNN Lease Market News

NNN cap rates declined by five basis points to just over 7.2% in the first quarter on average

The report covers trends in the macro economy with an eye on how these impact the net lease space.

It has found that the fit-and-start nature of the recovery has reinforced the appeal of net lease assets especially those with long term, high quality tenants. In addition, the sector is grappling by a lack of supply. The result of these multiple trends, not surprisingly, is that cap rates are low and getting lower. Namely, net lease cap rates declined by five basis points to just over 7.2% in the first quarter on average.

These rates, of course, fluctuate based on geography and tenant type. California and the Northeast, for example, claim the lowest cap rates.

The report also notes there is stronger investor demand for bank branches, pharmacies, and the best-performing fast food chains. Bank branches registered average cap rates of 6.1% in Q1, for example--100 basis points lower than the 7.1% average cap rate for pharmacies.

Investors, however, can be counted on to show a high degree of sophistication in their acquisitions not only across classes of tenants but specific tenants, as well. Sam Chandan, president and chief economist of Chandan Economics, tells GlobeSt.com. “Some pharmacy and bank branches are trading at sharply lower cap rates than their peers, even after controlling for variation in property quality and time to lease maturity.” For these most coveted assets, he says, debt yields are lower, as well, meaning that lenders perceive many of the same differences as relates to credit risk.

The most aggressive cap rates Jonathan Hipp, CEO ofCalkain, says he has seen has been in the mid 4s for “McDonald’s-type credit.”  Expect compression to continue, he tells GlobeSt.com. “Given where Treasuries are headed, people are looking for yield. Also, there is so much buyer interest in this product now we have gotten to the point where we almost don’t need new buyers. What we would like to have is more products.”

Not that the demand-supply imbalance will give investors pause, Hipp adds. “With everything going on, from the uncertain employment picture to the European debt crisis, at end of day people are still cautious on the economy. With the right combination of credit, location and length of lease it is a great time to be a seller in the net lease market.”

Or even a buyer, he says—but with a caveat. In this environment, current buyers should beware that an eventual exit strategy could happen in a period of higher interest rates and a diminishing flight to quality.

Source: GlobeSt.com

Gaylord to Convert to REIT

Gaylord Entertainment Co., GET -2.48% owner of four massive conference resorts, will sell its brand and management operations toMarriott International Inc. MAR -2.62% for $210 million and convert its property holdings to a real-estate investment trust.

The sale is a result of a strategic review Gaylord started early this year in reaction to prodding from its largest shareholder, Texas billionaire Robert Rowling. Mr. Rowling's TRT Holdings Inc., which owns the Omni Hotels & Resorts chain, was among four bidders for all or parts of Gaylord before Gaylord opted for the plan unveiled Thursday. A spokeswoman for TRT declined to comment.

Gaylord owns massive resort convention centers with 1,400 to 2,900 rooms each, including the Gaylord Opryland in Nashville, the Gaylord National in National Harbor, Md., the Gaylord Texan in Grapevine, Texas, and the Gaylord Palms in Orlando, Fla. As part of the deal, announced Thursday, Marriott is getting 35-year contracts to manage each of Gaylord's resorts at a 2% base management fee.

Gaylord had been planning to develop a 1,500-room resort in Aurora, Colo. But the company is revisiting these plans because of its conversion to a REIT.  Read more http://online.wsj.com

Individuals can invest in REITs either by purchasing their shares directly on an open exchange or by investing in a mutual fund that specializes in public real estate. An additional benefit to investing in REITs is the fact that many are accompanied by dividend reinvestment plans (DRIPs). Among other things, REITs invest in shopping malls, office buildings, apartments, warehouses and hotels. Some REITs will invest specifically in one area of real estate - shopping malls, for example - or in one specific region, state or country. Investing in REITs is a liquid, dividend-paying means of participating in the real estate market.

Read more: http://www.investopedia.com/terms/r/reit.asp#ixzz1wYCRq270