Average Property & Lease Credit Rating Average Cap Rate Trend 4.50% 2021 4.50% 2022 Rates reflect last 12 mos, short and long-term Recent Sales Comps Tenant News Featured Tenant Profiles Burger King Sector: QSR Avg. In 2021, auto manufactures sold 15 million new vehicles, which is 2.5% more compared to 2020. The lender only has the right to claim the leasehold. This requires special endorsements to the regular owners policy. The lease will specify whether they revert to the lessor or the lessee must remove them. Founded in 1997, the firm has closed over $6 billion of net lease property transactions. Growing inventory, strong tenant credits and yield have all been primary drivers. Ronny was incredibly adept and responsive top-notch professional who arranged impressive term sheets. Further, QSRs typically offer a lower price point and a higher percentage of absolute NNN lease types for investors compared to other sectors. Ronny did and performed exactly as he said he would. The number of properties trading hands in this sector increase back to historical averages and have held steady, demonstrating how investors are again looking at the net lease retail sector in general as an attractive, low or zero-management investment market with stable cash flow and sizable returns. On one hand, interest rates are rising. In Q1, cap rates held steady in the 7% range (6bps compression from Q4) as the average term, rent, and Price/SF remain relatively flat. We invite you to contact us for more information about our complete financial services. Welcome to CBRE's H2 2021 Cap Rate Survey (CRS), which reflects the views of hundreds of professionals about how sentiment and pricing are changing across multiple dimensions of the commercial real estate market. endstream endobj startxref Bank properties with the longest leases typically display attractive traits including relocation branches and modern prototypes. Through 2021, cap rates are expected to hold steady as most sales transactions in this sector are trading hands in suburban markets. This increase exemplifies that consumer confidence is on the road to recovery as shutdown restrictions have been drastically lifted with the economy continuing to rebound as business re-open. Cap Rates for Single Tenant Net Lease Bank Properties Compress; This additional aid to funds is expected to boost economic growth and push up both inflation and interest rates. There is a direct relationship between a net leased propertys value and its cap rate. If you are an accredited investor and would like to learn more about our current investment opportunities, click here. Choose your exact check-in and check-out dates for our monthly apartments for rent, while avoiding being locked into an annual contract. Accordingly, the landlord will usually charge lower rent on unsubordinated ground leases. Get instant access to all of our current and past commercial real estate deals. It is helpful to begin by looking at what happened in the fourth quarter of last year. 10-Year Treasury Note | Expected to rise to 2.1% in 2022, up from the current rate of 1.52%. All Rights Reserved. Over the past twelve months, gasoline prices have increased by 49.6%. The region may also see record-setting activity, as with nearly $8.5 billion reported, year-to-date investment activity has already surpassed 2020 annual totals. In fourth quarter, activity reached $18.3 billion, representing a 37 percent jump from the previous quarter and a 38 percent increase from fourth quarter 2020. 10-Year Treasury Note | expected to rise to near 2% in 2021, up from the current rate of 1.1%* This increase could create challenges for buyers to obtain ideal financing. Cap rates for Q1 recorded at 6.45% while the average lease term dropped to 8 years from 10 years in Q4. This sector is largely dominated by Walgreens transactions, and we expect to see the same over the coming months. Cap rates stayed flat recording down by just 1 bps in 4Q to 4.86% while average price per square foot increased by 14.6%. : The good news is that net lease terms often call for periodic rent increases, which can go a long way in helping to offset rising cap rates. The properties most likely to be impacted are those at the higher end of the risk spectrum. For individual investors who are interested in this asset class, partnering with a private equity firm is a good way to gain fractional ownership of institutional quality, net leased assets. Average cap rates compressed by 56bps to 5.58% during Q1 due to increased consumer demand, as most grocery stores are comprised of strong, high credit tenants Kroger, Albertsons, Sprouts, Aldi etc. Typically, a ground lease term extends to at lease 5 to 10 years beyond the leasehold mortgage. As an example of a ground lease, consider one signed for a Starbucks drive-through shipping container store in Portland. We would most definitely utilize their services again and again for all of our real estate needs. Further, QSRs typically offer a lower price point and a higher percentage of absolute NNN lease types for investors compared to other sectors. Because of this shift in consumer behavior the auto industry is reviving at a faster than expected rate. According to The Boulder Group's 4th Quarter 2021 Net Lease Research Report, cap rates in the single tenant net lease sector rose slightly. However, short term leases with strong underlying real estate fundamentals will be in demand amongst certain investors who are willing to take on more risk through potential re-tenanting or redevelopment of a property., To view the full report: https://bouldergroup.com/media/pdf/Net-Lease-Bank-Ground-Lease-Report.pdf. In Q4, an investment sale to note was Home Depot located in Anaheim, CA, which is the largest Home Depot location on the West Coast, traded at $53 million ($259 PSF). Performance of c-store/gas stations will likely depend heavily on gasoline prices and sales. In the first quarter national asking cap rates in the single tenant bank ground lease sector decreased to 5.35%, according to the 2021 Net Lease Bank Ground Lease Report. Accordingly, as banks implement their modern footprints and mobile banking strategies, bank branch closings have become more common. Due to the delay issues with supply chain operations and chip shortages, the automotive industry has been directly impacted as available inventory has become very limited. No hassles. The key difference between the two is who is responsible for payment of the propertys operating expenses. It was a rather unusual ground lease, in that it was a 10-year triple-net ground lease with four 5-year options to extend. Although single-tenant industrial activity remains far from record-setting levels, the sector continues to outperform within the net lease market and accounted for 47 percent of second quarter 2021s sales volume. The 10-Year Treasury rate is expected to rise to at least 2.1% by mid-year with the current rate recording at 1.9%. : Strong markets like major metro areas with high population growth command lower cap rates because they are considered less risky. Cap rates in Q1 compressed 3bps compared to Q4. Importantly, the tenant is responsible for paying all property taxes during the lease period. In comparison to the economic depths experience in the spring 2020, the auto industry rebounded in new-vehicle sales. Normally, the lessee will want a term that is 5 to 10 years longer than the loan amortization schedule. Copyright 2023. In addition, interest rates are rising, inflation is at a 40 year high, and housing affordability continues to be a major issue. Market activity greatly surpassed expectations in fourth quarter 2020 as investors rushed to close deals before year-end. This increase could create challenges for buyers to obtain ideal financing. That control reverts to the owner/lessor upon the expiration of the lease. COVID-19 Vaccination | 203.8 million (61%) people in the U.S. are fully vaccinated in Dec/2021, Startups are Growing | 432,000 new business applications in Nov/2021 (up 9% YOY), Evolving Work Force Environment | Remote Work & Space Hybrid Conversions, Liquid Deposits | Increased by 4.8% since Nov/2020. Once the lease expires, the tenant turns over the property improvements to the owner, unless there is an exception. Click the button below for a printer friendly subscription form which we must have to create or renew your subscription. In addition to the real estate lease, Assets America utilized their decades-long financial expertise to negotiate fantastic rates and terms on our large and very unique multimillion dollar equipment purchase/lease. This is difficult in an unsubordinated ground lease because the lessor has first priority in the case of default. In return, the landlord asks for higher rent on the property. Pharmacy continues to be a strong asset class for 1031 investors seeking investment grade credit tenants. However, fast food ground leases with shorter amortization periods might have a 20-year lease term. According to The Boulder Groups 4th Quarter 2021 Net Lease Research Report. Not to mention a below market lease rate and more than all the features we needed in a site. A flight to quality locations resulted in about half as many Q1 transactions compared to Q4. As we look ahead, the trajectory of the pandemic and vaccine rollout will undoubtedly shape the 2021 economic landscape. The demand on the educational sector has been changing and evolving due to the impact of COVID-19. The bad news is that the pandemic is grinding into its third year with a new, highly transmissible variant that has prompted cities like New York to reinstitute restrictions. It is against this backdrop that we look at commercial real estate (CRE) cap rate trends for 2022. Expect this sector to continue to outperform other sectors as flight to safety and recession resistance remains to be a target for investors. Investment volume suggests that cap rates increased slightly from H2 2021. It is expected the QSR sector cap rates will remain relatively flat or slightly compressed through the first half of 2021. The cap rate formula is: Cap Rate = Net Operating Income / Market Value. We sought out the services of Ronny, CFO of Assets America. As more people return to work and school, the need for C-Stores will increase. is one of the countrys leading private equity commercial real estate investment firms. endstream endobj 58 0 obj <>>> endobj 59 0 obj <. Property types include: Apartments; Student Housing; Health Care and Senior Housing; Gas Stations and Convenience Stores; Golf Courses and Country Clubs; Industrial Warehouses and Distributions Centers; Hotels and Motels; Mini Storage Facilities; CBD and Suburban Office Buildings; Retail Shopping Centers; RV and Mobile Home Parks; Schools and Churches; Residential and Office and Industrial Condominiums; Subdivisions and Business and Industrial Parks; and Land Leases. The 10-Year Treasury continues to climb as the Fed announced they expect to increase interest rates at least four times in 2022 as yields increase due to the pressure of growing inflation. : Recently completed or newly renovated properties have less risk (lower cap rates) than older properties. The lender must have recourse to protect its loan if the lessee defaults. Despite a 5-basis point increase in the last quarter, cap rates arent expected to move substantially, although its possible the sectors average could rise above the 6.0-percent mark by year-end. Given the medical industry has been deemed as one of the most important sectors due to the correlation impact of COVID-19, single tenant net leased medical properties saw a slight compression in average cap rates, recording at 6.78% in Q1. Subsets including cold storage, last mile distribution, outdoor industrial storage and others continue to be in high demand, as has been the trend over the past few years. Referring all our clients. COVID-19 Vaccination | 39.6 Million People in the U.S. Have Received Their First Dose, Startups are Growing | 1.1 Million New Business Applications in 4Q/2020, Evolving Work Force Environment | Remote Work & Space Hybrid Conversions, $2 Trillion in Savings Deposits | Americans Accumulated Since February 2020. Typically, a ground lease lasts from 35 to 99 years. Since the beginning of the pandemic, average cap rates have slipped into the high 5.0 percent range and at mid-year 2021, sat at 5.9 percent. Do Cell Tower Leases Pay More in One Area of the Country Over Another? The result of the calculation is a percentage that provides investors with the propertys annual rate of return if it is purchased with cash. In order to understand net lease trends, it is first necessary to understand what net leases are. Beyond that, there are two possibilities for the end of a ground lease. The University of Michigans consumer sentiment for the US recorded at 83.0 in March 2021. So, Assets America handled both the sale and the loan for us and successfully closed our escrow within the time frame stated in the purchase agreement. Assets America also handled the commercial loan for us. We referred them to all our business associates. We'd love to get in touch with you about how we can assist you with your retail real estate needs. Yields also ticked up as initial unemployment claims declined. The lenders requirements for applying the condemnation proceeds and controlling termination rights mirror those for casualty events. Bank institutions that made strategic technology investments prior to COVID-19 came out stronger. Cap rates are holding steady with rates inflating just 5bps in 1Q. Thus, the property deed becomes collateral for the lender if the lessee defaults. Pleasure to work with and extremely knowledgeable, Assets America guided us every step of the way, The company is very capable, I would recommend Assets America, Assets America was incredibly helpful and professional, Assets America is a great company to work with, We were very pleased with Assets Americas expertise, Assets America helped us survive a very difficult time, Highly recommend them for any type of commercial financing, [contact-form-7 id="8901" title="Multistep Questions"], Starbucks drive-through shipping container store, Aircraft Financing Terms & Loan Complete Guide, Alienation Clause Everything You Need to Know, ARV After Repair Value Everything You Need to Know, Assignment Clause Everything You Need to Know, Average Daily Rate (ADR) Formula Complete Guide, Cap Rate Simplified for Commercial Real Estate (+ Calculator), Cash Coverage Ratio | Complete Guide + Calculator, Cash Out Refinance on Investment Property Complete Guide, CMBS Loans: Guide to Commercial Mortgage-Backed Securities, Commercial Real Estate Appraisals Everything You Need to Know, Commercial Real Estate Syndication Ultimate Success Guide, Contingency Reserve Everything You Need to Know, CRE Loans What Nobody Tells You About Commercial Lending, Cross Default Everything You Need to Know, Equity Kicker Everything You Need to Know, Full Service Gross Lease Everything You Need to Know, Gap Funding Commercial Real Estate Pros & Cons, Ground Lease Everything You Need to Know (+ Calculator), Guide to Floor Area Ratio, Floor Space Index & Plot Ratio, Hard Costs vs Soft Costs Commercial Real Estate Guide, Hard Money vs Soft Money Loans in Real Estate, Hypothecation Agreements Everything You Need to Know, Intercreditor Agreements Everything You Need to Know, Loan Proceeds Everything You Need To Know, Loss to Lease Everything You Need to Know, Mergers & Acquisitions Seller Intake Questionnaire, Mergers & Acquisitions Buyer Intake Questionnaire, MIRR Guide | Modified Internal Rate of Return (+ Calculator), Modified Gross Lease Everything You Need to Know, Operating Expense Ratio Ultimate Guide (+ Calculator), Partially Amortized Loan Complete Guide, Potential Gross Income Everything You Need to Know, Preferred Equity in Real Estate Complete Investors Guide, Preferred Shares Everything You Need to Know, Property Interest Everything You Need to Know, Restrictive Covenants Everything You Need to Know, Reverse 1031 Exchange Everything You Need to Know. Keep in mind that Assets America can help finance the construction or renovation of commercial property through our network of private investors and banks. Casual dining net lease is one of the most impacted retail sectors affected by COVID-19 compliances as businesses struggle to stay afloat. They are gross leases, modified gross leases, single net leases, double net leases and triple net leases. Quarterly sales volume was down across all regions of the single-tenant industrial market in first quarter 2021, however, the data is a bit deceiving. Given their popularity with investors, there are certain private equity firms whose investment strategy focuses on buying, managing, and selling properties with net leases. The firm provides a full range of brokerage, research, advisory, and financing services nationwide. Ive worked with this company for decades. Even as the market emerges from the pandemic, and consumers may depend slightly less on e-commerce in the near term, the outlook still points to a long-term reliance on industrial product, and investors will continue to be drawn to opportunities in this sector. They handled a complex lease and guided us through entire process, including the paperwork. For the third consecutive year, the median term remaining for the bank ground lease sector was below 10 years., Net lease investors will continue to monitor the bank sector following the Covid-19 environment which temporarily closed many bank branches aside from drive-thrus. Average cap rates for pharmacy net leased assets held steady in Q1 at 6.05%. Data is distributed amongst 13 regions encompassing all 50 states as well as Puerto Rico, Guam and the U.S. Virgin Islands. It was great to have such knowledgeable and super-experienced, licensed pros in our corner, pros upon which we could fully rely. The inherited improvements allow the owner to sell the property for more money, if so desired. Still, quality assets within this sector will continue to be sought after by the majority of investors moving forward. : Net leased properties should be conservatively underwritten with manageable debt loads that have fixed interest rates, strong locations, and high quality tenants. We can help finance the purchase, construction, or renovation of commercial property through our network of private investors and banks. The level of annual, single-tenant transaction volume consistently ranks the firm in the top 10 companies nationally, according to industry benchmarks determined by CoStar and Real Capital Analytics. Ronny was a pleasure to work with and is extremely knowledgeable. Additionally, we needed 80 percent financing on our multimillion-dollar purchase. 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