Cap Rates on Walgreens and CVS Properties Remained Flat

NNN Lease Market News



Cap Rates on Walgreens and CVS Net Lease Properties 

Cap rates on Walgreens and CVS properties remained flat with the quarter prior at 6.45 percent and 6.7 percent respectively, but cap rates on restaurants fell 25 basis points to 7.25 percent. Cap rates on McDonald’s restaurants in particular fell 20 basis points to 4.8 percent, and cap rates on Dollar General stores fell 15 basis points, to 8.1 percent.

In addition, cap rates on properties leased to banks compressed 35 basis points, to 5.5 percent. Still, the cap rate compression on the most popular properties was below predictions. Back in May, researchers with Marcus & Millichap Real Estate Investment Services estimated that cap rates on dollar stores and drug stores would fall 30 basis points each from the first to the second quarter of 2012, while cap rates on quick service restaurants would fall 60 basis points.

However, few of those properties are trading in the core markets. Finding a McDonald’s or a Walgreens for sale in a primary market has “gotten tougher because there is not a lot of new things coming out of the ground and partly that’s what pushed down cap rates, as well as [the fact that] interest rates have gotten so low,” says Jonathan W. Hipp, president and CEO of Calkain Cos., a Reston, Va.-based brokerage and consulting firm specializing in the net lease sector.

To compensate for lack of product in prime locations, net lease investors have been more willing to accept risk in exchange for higher yields. Some are starting to buy assets leased to A-credit tenants in second-tier markets, Hipp notes. Others are investing in franchise restaurant locations instead of corporate-owned properties because they like the sector’s healthy growth.

www.calkain.com

Demand Heating up for Small and Mid-Size NNN Market

NNN Lease Market News

Low- and mid-range market sees growing activity as investors buy up store spaces; Eastern Consolidated starts new retail division

As the demand for these assets has increased in recent years, megadeals like Vornado’s $707 million retail condo purchase at 666 Fifth Avenue have grabbed headlines.

But the trend is now trickling down to the lower end of the market, brokers said, with demand heating up for small and mid-size retail condos in up-and-coming markets like southern Soho, especially along Canal Street, and the area adjacent to Times Square. An increase in 1031 exchanges — where owners buy property with money from the sale of property they already own, thus deferring the capital gains tax — has also contributed to the rising interest in retail condos, as investors have looked for cash flow in the difficult commercial real estate market, brokers said.

“It’s a very competitive market with lots of prospective buyers,” said Robin Abrams, executive vice president at Lansco, who noted that approximately half her brokers have done retail condo deals.

http://therealdeal.com/issues_articles/retail-condos-not-just-for-the-big-guys/

NNN Investment in Spring Hill, FL Sold

NNN  Lease Market News

Sale of Multi-Tenant NNN Investment in Spring Hill, FL

Calkain Companies, a national net lease commercial real estate firm, recently brokered the sale of a multi-tenant, NNN investment in Spring Hill, Florida. The two-tenant investment property is situated on 1.08+/- acres with high visibility to busy US HWY 19, just 30 minutes North of Tampa. It is occupied by Pet Supermarket, based out of Sunrise, Florida. BBB- rated, Humana Marketplace, headquartered in Kentucky is also a tenant.

The site is a 9000+/-sf building divided into 7000+/-sf for Pet Supermarket and 2000+/-sf for Humana. Pet Supermarket renewed their lease for 7 years with structured increases and options and Humana exercised their 2 year option. The seller, an experienced private owner and long-time client of Calkain, was looking to liquidate to secure other opportunities. The property sold for $1.61MM which is a 8% cap rate to a private Florida based buyer completing a 1031 exchange.

Calkain Associate, Teal Henderson, who was recently tapped to open the new Midwest office in St. Louis, MO from Tampa, exclusively represented the private seller and provided marketing and transaction support services throughout the sales process. The property was initially introduced to the market with quickly expiring leases. Henderson commented, "We quickly recognized the hurdle of the current lease terms being unfavorable along with the tertiary and lesser known Florida location of Spring Hill. We counseled the seller in reaching out to the tenants and restructuring with more attractive terms. Then after successful negotiations, we re-introduced the property on the market and generated a quick contract. A private buyer interested in a Florida property with an investment grade tenant with ties to the medical industry purchased the asset." As a NNN ground lease, this investment requires that the tenant pay for real estate taxes, insurance, and maintenance expenses, which effectively provides the landlord with a passive, bond-like income stream through commercial real estate ownership. The transaction occurred within the last 15 days and will be recorded in the public records.

Calkain Companies is a boutique commercial real estate brokerage firm which specializes in assisting buyers and sellers with single and multi-tenant retail, industrial, hotel and office net leased transactions. While licensed to conduct business in many states, nationally, Calkain has multiple office locations throughout the Mid-Atlantic, Southeast, Northeast and a new office opening in the Midwest. Additional information about the firm and listings may be found at www.calkain.com.

Net Leased Property Market Heats Up

NNN Lease Market News

The record-setting $14.5M purchase of a CVS net-lease property in Adams Morgan last week confirmed what everyone's thinking: prescription drug prices have gotten way out of hand. We'll be sure to ask President Obama about that in Charlotte. But something else the deal shows, Calkain's Rick Fernandez tells us, is investment demand for the sector in DC is approaching historical highs.

 As with other real estate assets, investors are drawn to DC's triple-net market for its resiliency. "This market has weathered recessions very well," Rick (above, with his sons Alex and Jack at Sunday's Nats-Cards game) tells us. "In terms of investor demand, it's right up there with New York City." Combine that with minimal construction starts and economic uncertainty and you've got a recipe for shrinking cap rates—the Adams Morgan CVS traded at a sub-6% cap.

 Here's the Adams Morgan CVS. In large part, pricing and demand are being driven by 1031 exchange buyers and high-net-worth investors concerned about their financial health, Rick says. Net-lease properties with a strong credit tenant provide cash flow and income with a real estate backstop that provides a measure of security that the stock market can't equal, and "now is an extremely favorable time for sellers of net lease properties." Institutional players are in the market, too, he tells us, but private buyers have provided the majority of aggressive offers in DC so far this year.

 Rick tells us urban locations are the most sought-after because of economic stability, population growth in the urban core it's easier to find replacement tenants in a tight spot. "At a pad site in front of a big box in the suburbs, you have fewer options to replace a tenant. If you're downtown, a 4,000 SF rectangle has a wide variety of tenants to attract."

www.calkain.com