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."
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