Net Lease Investors Can't Get Enough High-Yielding REITs

NNN Lease Market News

Desperate for income, investors can't get enough high-yielding REITs and Wall Street is rushing to supply them. Companies are lining up to convert into REITs, a step that requires approval from the Internal Revenue Service.

Prisons, cell towers and golf courses were turned into REITs in the late 1990s, Mr. Westphal says with "pretty dreadful" results that in some cases produced losses of 90% or more.

So the market is changing and investors should temper their expectations accordingly.

While owning REITs is a good idea, panic buying isn't. Many investors are dumping money-market funds or bond funds and replacing them with higher-yielding REITs, says Morningstar analyst MichaelRawson. But REITs aren't bonds; the FTSE NAREIT Equity REITs Index, a benchmark of more than 120 of these stocks, lost 37.7% in 2008, when U.S. Treasury bonds had a positive 13.7% return.

http://online.wsj.com/home-page

UPREITS: TAX-DRIVEN CONVERSIONS FOR PROPERTY OWNERS

One of the more under-discussed aspects of the REIT is how it can benefit a seller of real estate. By contributing a property to a REIT you can achieve many of the same benefits associated with a §1031 exchange including deferral of gain recognition not to mention several other potential advantages. For the owner looking to monetize their investment in a tax advantaged manner with the possibility of additional upside this option deserves some additional examination. 

Click here for more Information about REIT 

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Hotel Investment Returns Tend to be Higher This Year

 The Occupancy Rate was 71% for the Highest-Priced Segment of the Hotel Market from January through November 2011

Private-equity firms will help drive an increase in hotel transactions this year in smaller U.S. cities, where investment returns tend to be higher than in large markets, according to Jones Lang LaSalle Hotels.

“While public real estate investment trusts have been focused on major markets, private equity has been looking at secondary markets,” where hotel income is greater relative to property prices, said Arthur Adler, managing director and chief executive officer for the Americas at the firm, part of Jones Lang LaSalle Inc. (JLL) “The reluctance to invest in secondary markets is melting.”Minneapolis; St. Louis; Nashville, Tennessee; and Charlotte, North Carolina are among cities attractive to lodging investors because they lure travelers and have healthy business climates, Adler said in an interview.

http://www.bloomberg.com/news

Abu Dhabi’s Government Agreed to Buy Assets Valued at 16.8 Billion

Government Agreed to Buy Assets Valued at 16.8 Billion 

The government will purchase 760 three-bedroom to five- bedroom homes in the Al Raha Beach development and retire 5 billion dirhams of debt related to infrastructure on Yas Island,Aldar said in a statement today. It will also buy 5.7 billion dirhams of assets in Abu Dhabi’s city center, known as the Central Market, and finance the completion of the district’s redevelopment.
Developers in the United Arab Emirates are struggling to pay down debts after the credit crisis caused property values to plummet and drove speculators out of the market. The statement was released after the Abu Dhabi market closed. Aldar gained 3.7 percent to 84 fils today, the biggest gain in about two months. The shares have fallen 31 percent in the past six months, while the Bloomberg EMEA Real Estate Indexhas lost 19 percent.
“This will have a positive sentiment in the market, leading investors to buy the stock aggressively,” said Musa Haddad, head trader at National Bank of Abu Dhabi PJSC’s asset management group said.

New Tricks for NNN Lease Mall Investor

NNN Lease Market News

Goodbye to Circuit Citys and Old Navys; Hello, Gun Ranges, Aquariums, Go-Carts

Sobered by store closings and the rise of online shopping, owners of U.S. shopping centers are filling space and drawing visitors by turning to unusual tenants like gun ranges and go-cart tracks.

Mall giant Simon Property Group Inc. opened an aquarium in July at its Grapevine Mills mall near Dallas. Real-estate brokerage Jones Lang LaSalle Inc. put a fencing academy in a former Old Navy store in Florida's Tallahassee Mall, and a community theater on the lower level of a former Boscov's store in Harrisburg,Pa.

Nontraditional tenants, in many cases, though, don't pay as high a rent as major chains would pay. What's more, nonretail tenants often don't pay percentage rents, a form of bonus rent that retailers pay from a small percentage of their sales when they exceed a certain threshold.

Even top performing mall companies—like Simon, which reported a 19% rise in earnings Tuesday—are looking at restaurants, entertainment and other nonretail uses as a hedge against the drain from online shopping. Glimcher Realty Trust purposefully filled 25% of its upscale Scottsdale Quarter mall near Phoenix with restaurants such as Stingray Sushi and services like Drybar, a salon that specializes in blow drying women's hair. "She can't go out to lunch and have a salad and a glass of wine with her girlfriends online," Glimcher Chairman and CEO Michael Glimcher said, referring to the mall industry's coveted female shoppers.

Struggling shopping centers, like the Tallahassee and Harrisburg malls, meanwhile, are signing nonretail tenants because no one else is lining up for the space. But adding a tenant with limited potential to bring shoppers to the rest of the center—like classrooms or a church—often isn't popular with existing tenants. The move can be seen as giving up on the center as a retail venue.

http://online.wsj.com/article/

Investors Lack Confidence in Net Lease Market

NNN  Lease  Market  News

Investors Lack Confidence in Net Lease  Market 


Even the CMBS markets have cooled. Where there were about $20 billion in CMBS loans completed by the second quarter and there were thoughts the year could hit $50 billion, now respondents almost unanimously agreed that there will be less than $40 billion in CMBS for the year.

More than 70 percent of 280 surveyed real estate CEOs, COOs and CFOs said they have a negative, or "bearish," outlook for the commercial real estate sector over the next 12 months. The poll, cited by Reuters, was conducted by global law firm DLA Piper in connection with its Global Real Estate Summit held today in Chicago.

A lack of confidence in the Obama administration, the general gridlock in Washington and poor job growth were reasons behind the pessimism. Though sales have increased this year, and prices are up 12.5 percent from their lows in April, investors worry that the Net Lease market will lose more footing.

"What you now see is a growing degree of uncertainty, and uncertainty begins to push money to the sidelines because people are much more reluctant to make a decision," said Jay Epstien, a partner with DLA Piper.

The 29.4 percent of respondents who were bullish on the Net lease market cited increased opportunity for profit as a reason to be optimistic. Even the bears conceded on that point. Seventy-four percent said they did not expect interest rates to change, 67 percent felt cap rates would remain unchanged, and 24 percent believed they would rise. 

However financing for deals will be hard to come by, according to about 90 percent of respondents. They expect the commercial mortgage-backed securities market to slow over the next year. Already, just $26.7 billion worth of securities have been issued thus far in 2011, down from $243.3 billion in all of 2007.

What NNN Investors Really Really Want

NNN Lease Market News

Grocery Shopping Centers Lure Buyers as $200 Million U.S. Venture Formed

Phillips Edison-ARC Shopping Center REIT Inc., a Cincinnati-based company that isn’t listed on an exchange, will contribute $52 million to the partnership, and clients of CBRE Investors will put in $50 million, the REIT said today in a statement. They will borrow about $102 million for U.S. deals.
Retail centers with supermarkets are attracting investors because of the perceived safety of properties that consumers have to visit for necessities in a slow-growing economy. Sales of such real estate in the first half of the year exceeded the total for all of 2010, according to research company Real Capital Analytics Inc.
About $5.58 billion of grocery centers were sold this year through the second quarter, 22 percent more than the $4.57 billion in all of 2010, according to New York-based Real Capital. The 2011 total is the highest since 2007, the peak of the commercial real estate market.
Supermarket-anchored centers haven’t been immune to the economic slowdown. Vacancy rates have risen as local retailers, such as dry cleaners and restaurants, have gone out of business. Reduced access to capital has prevented other stores from taking up their space.

http://www.bloomberg.com/news

NNN Lease Investors Remain Enamored With Walgreens & CVS Caremark

NNN Lease Market News

NNN Lease Investors Remain Enamored With Walgreens & CVS Caremark

Net lease investors can’t seem to get enough of the drugstore sector with sales today being driven by a desire among both lenders and buyers for low risk assets with a steady income stream.

According to a report on the second-half outlook for net lease properties from Marcus & Millichap Real Estate Investment Services, drugstore sales were up 10 percent, supporting a 3 percent rise in the median price for the sector to $334 per square foot.

http://retailtrafficmag.com/

The 5 Secondary Market for Real Estate Investor That Will Thrive in 2012

Dallas and Minneapolis Named Best Secondary Market for Real Estate Investors


Investors have been moving into secondary markets such as Dallas and Minneapolis amid growing confidence in the recovery and soaring prices that drove down yields on office buildings, shopping malls and apartments in prime cities including New York, San Francisco and Washington. Purchases of commercial properties in secondary markets had been increasing this year, extending a rebound that started in the big coastal areas.
Purchases of commercial properties in secondary markets had been increasing this year, extending a rebound that started in the big coastal areas. Building values and rental rates don’t appreciate as fast in secondary markets compared with land-constrained coastal markets because it is easier to construct new buildings.
The Federal Reserve said on Aug. 9 that it will maintain record-low interest rates at least through mid-2013 to boost growth that has been “considerably slower” than it forecast.
If the Fed is successful, prime and secondary commercial real estate markets should benefit.

http://www.blommbeg.com/

As of 2009, it was estimated that there are dozens of dedicated firms and institutional investors that engage in the purchase of private equity interests in the secondary market with upwards of $30 billion of capital available for such transactions.The market for secondary interests is still highly fragmented. Leading secondary investment firms with current dedicated secondary capital in excess of circa $3 billion include: AlpInvest Partners, AXA Private Equity, Coller Capital, HarbourVest Partners, Lexington Partners, Pantheon Ventures, Partners Group, Neuberger Berman, and Paul Capital.

Investors are Buying NNN Lease Properties in Primary Markets

NNN Lease Market News

Opportunity Investors are Buying up Semi-Vacant Office Buildings, Retail Centers and Apartments in Primary Markets.

 Lenders are more likely to be interested in financing deals in a secondary market if they know that specific market is in recovery mode, says Ryan Krauch, principal at Mesa West Capital, a portfolio lender based in Los Angeles. “We can get very comfortable in markets we believe have come to a low point in their cycle.”

Mesa West has placed approximately $750 million in commercial real estate loans since the third quarter of 2010. In particular, the lender seeks to finance Class-A properties that stand to benefit from local tenants upgrading to higher-quality space.

That was the case earlier this year in Phoenix, where Mesa West provided a $40 million mortgage loan to finance two prominent office buildings known as Anchor Center. “You'll definitely see money flow first to the highest-quality, best-located properties in those secondary markets,” says Krauch.

 Investors who buy distressed properties or acquire assets in markets where property values are only beginning to stabilize may have to wait several years before those properties generate income, much less a profit.

Merage of MIG Real Estate says that's a risk he is willing to take because he believes that the economic recovery will eventually usher in steady rental income and healthy property values.

“We're a patient investor, so it comes down to the long-term viability of the marketplace that we're pursuing,” he says. “In a lot of these markets, it's going to be a long time before we see a significant recovery.”

Low interest rates mean leverage is affordable, but it is still challenging to find lenders who will finance deals in secondary and tertiary markets. “Capital is being very selective,” says Ronen of Lucent Capital. “We're reaching out to 50 or 60 different capital sources to find two or three that are willing to finance a deal.”

Lenders may offer higher loan-to-value financing on high-quality assets with partial vacancy, or in a market where property values have bottomed and are poised to appreciate as the economy recovers, says Ronen.

That's because the lender understands that the asset's value and cash flow will likely increase over time, which decreases the relative size of the debt on the appreciating property.

By contrast, prices on core assets in primary markets reflect a maximized income stream, leaving little room for value appreciation after an acquisition.

From a trough in December 2009 to March of this year, prices of non-distressed, trophy properties in primary markets had risen 26.7%, according to Moody's Investors Service. That's based on an index of properties valued at $10 million or more in the largest U.S. markets.

http://www.sacommercialpropnews/

The NNN Lease Lucrative Investor

NNN  Lease Market

Calkain NNN Lease Expert and receive the answer to your question directly to your inbox! No need to search all over the internet for you answers, leave it to the experts.

NNN  leases are also unique in their duration.  Unlike a typical residential lease that lasts only 6 to 12 months, a NNN lease lasts typically 15 to 30 years.  This is a huge advantage for property owners who want consistency in the monthly payments and the security of not having to worry about the constant struggle of placing tenants. NNN leases also take into consideration inflation and typically include rent increase clauses through the life of the lease term.

Typical tenants for NNN leases are Walgreens, CVS, Social Security Administration, Arbys, Pizza Hut, 7eleven, Wells Fargo and many more.  These well recognized companies are willing to participate in NNN leases, because owning all of their business locations is not advantageous to their business model or growth.

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 NNN lease, which many investors also call a corporate bond combined with real estate investments that still make sense today.

Owning a NNN lease property offers a long term lease with a corporately rated tenant, opposed to an individual tenant in residential real estate.  The major benefit of a NNN lease is the consistent monthly return without the hassles of being a landlord.

http://www.calkain.com/

Commercial Real Estate Investors are Optimistic U.S. Recovery Will Continue

NNN Lease Market News

Commercial real estate investors are optimistic that a U.S. industry recovery will continue even as the economy shows signs of slowing.
A lack of new supply and low interest rates are helping to drive investor interest in commercial properties. Capitalization rates, which decline when real estate prices increase, fell in 27 of 31 markets surveyed.
Office properties led cap-rate declines in the second quarter, the report showed. The average cap rate for office buildings in central business districts was 6.95 percent, down 1.2 percent from a year earlier. Cap rates, a measure of yield, are net income divided by the sales price
Buyers are pursuing deals as the market improves, and concern that that the economic recovery will falter has deterred “very few” investors from acquiring assets.
There will be “very few additions” to the commercial- property supply in the near term, which will help absorb existing space and drive up rents as tenant demand increases, according to the report. Lease rates remain below peak levels for most property types and increased in 25 of 31 markets surveyed.
The Northeast is the strongest office market, with nine out of 10 regions surveyed in recovery or expansion this year.
Two-thirds of investors view current market conditions as favorable to sellers, and all 81 multifamily markets surveyed are expected to be out of recession by the end of the year.

http://www.bloomberg.com/news

Investors are Turning to Secondary Markets

NNN lease Market News

Investors are turning to secondary markets as credit availability improves and surging demand for properties in New York, Washington and San Francisco boosts prices and reduces returns in those areas. Cities such as Dallas and Houston are attracting real estate buyers because of the prospects for job and population growth, according to Robert Bach, chief economist for Grubb & Ellis Co., a Santa Ana, California-based broker.
“It’s a story of investors gradually embracing risk,” Bach said in a telephone interview. “They’re looking at other markets to deploy cash.”  Prices for offices, the biggest part of the market, climbed 33 percent in New York and 21 percent in Washington in the fourth quarter from a year earlier, according to Moody’s Investors Service. That compared with a 1.7 percent gain nationally.

http://www.bloomberg.com/

Questions and Answers About Today’s Net lease Market

NNN Lease Market News

Can you quantify cap rate differences by market for the same credit tenant?

Demand for credit rated property within the MSA of the elite primary markets is strong but the lack of product means that a NNN net investor is going to pay a premium for that property. The spread for credit rated tenants can vary by up to 100 basis points if you are in New York or Washington, D.C. versus other primary market cities with another modest drop in cap as you enter the secondary and tertiary markets around the country. There is not as significant a variance in the recorded caps for credit rated tenants in secondary, tertiary and the primary markets outside of the elite group mentioned above. A review of closed transactions in 2010 shows that a Walgreens minutes from D.C. in suburban Virginia might sell for a 6.5 cap or better whereas a similar property might sell at a 7.5 cap in Philadelphia.

How do investors weigh credit tenant versus strong location and market?

The greatest disparity in cap rates between markets can be seen in the transactions recorded for non-credit rated tenants. At the height of the market, investors often looked at NNN net properties with the same overly optimistic view as their well-documented counterparts in residential real estate. Today, NNN net investors rightly focus on core real estate fundamentals, the survivability and strength of the tenant and the landlord’s ability to replace the tenant and rent should the tenant fail. NNN net investors are buying national non-credit rated tenants and local mom and pop shops in the elite markets if the performance and prospects of the tenant is known and the underlying real estate is strong. In D.C., the seller of a NNN net retail condominium with a local tenant operating a quick-serve restaurant in the heart of a thriving urban market sold at a 7 percent cap rate. By comparison, non-credit retail properties outside of the primary markets trade from 50 to 200 basis points higher than their primary market counterparts.

Have you seen a difference in debt terms based on geography or is it just on the investor side?

Debt terms do vary by market and tenant with a local lender the only prospect for debt in some markets. National lenders continue to pull back in many cities but insurers and the big banks are financing a great variety of transactions in the primary markets.

As the supply of NNN net property remains limited, do you see investors moving towards lower credit or other markets?

In today’s market, suitable NNN net investment property is hard to find. Quality NNNnet investment property is harder still. Perhaps hardest of all are the $1 million to $5 million size transactions where average investors focus their attention. For many of these investors, as with many of the REITs, the return will not be equal to the risks associated with non-credit tenants in secondary and tertiary markets and they will remain on the sideline.

www.calkain.com/read-more-news.

Investors Are Offering More Capital To So-Called REITs

NNN  Lease Market News

Blockbuster NNN lease transactions this week for seniors housing, skilled nursing and other post-acute care assets by Ventas Inc. and Healthcare REIT Inc. underscore the expansion and growth potential of health-care REITs. The deals also demonstrate that investment in the seniors care subsector has picked up as public companies deploy hundreds of millions in equity capital raised over the last 12-18 months.
Investors are offering more capital to so-called REITs, with dividends averaging 13 percent, because their borrowing costs are being held at close to zero by the Federal Reserve while they buy higher yielding, mostly U.S.-guaranteed securities. One measure of the potential profits from such investing reached the highest in 10 months in February.


http://www.bloomberg.com/news