Net Leased Investment Sales Volume May Be Poised to Surge

By: Michael R. Koch, Net Lease Specialist, Sales and Dispositions, Carter

Single Tenant Sales Trends It’s been a long time coming, but it appears that deal activity in the net lease sector may be poised to surge.

The market for net leased properties has shown clear improvement throughout 2010. In the first eight months of 2010, investment in retail properties amounted to $22 billion, according to the Bethesda, Md.-based research firm CoStar Group. In contrast, the full year figure for 2009 was $12 billion.

There are signs that deal volume may jump by an even greater degree through the end of 2010 and into 2011. Firstly, after waiting for more than a year to start dealing with the distressed assets on their books, lenders are feeling healthy enough to begin disposing of some of their troubled real estate, industry sources say. Moreover, institutional and private investors that have amassed war chests are ready to pounce on the deals that may come to light.

A large majority of investment sales brokers say they are seeing a clear rise in activity. This is attributed to an increase of greater financing availability and a more optimistic outlook on leasing activity, as well as attractive pricing.

According to Real Capital Analytics, a New York City-based research firm, several large portfolio sales are projected to trade by year end. This is a sign of health in that it shows buyers are finally able to secure the large loans necessary to complete portfolio acquisitions. In 2008, the low point in this cycle, almost no portfolios traded hands.

MK NNN Graph 3 To date, much of the activity that has been occurring has centered on class-A properties in core markets. As a result of transaction activity being skewed toward best quality assets, cap rates in the net-lease sector have showed improvement in recent months. We are seeing more potential sales being teed up for the first quarter of next year. And we are seeing it on all product types, particularly retail.

Additionally, as more class-B and C product begins to sell, average cap rates could inch higher, perhaps by 50 to 75 basis points. The increase would spur on further acquisition activity by providing opportunities for investors interested in distressed and value-add assets.

Michael Koch is a member of the National Investment Sales Group at Carter. His area of expertise is in selling single-tenant net leased properties and portfolios nationwide. Michael has direct access to the most current and critical market information and is dedicated to fully understanding and exceeding the needs of his clients by using a disciplined and thorough approach to each transaction.

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