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.
