The GL specifies who owns the land and the improvements, i.e., property that the lessee constructs. They were our One-Stop-Shop. In particular, the so-called risk free rate on the 10-year US Treasury has risen from 1.08% to ~1.70% in the first few weeks of 2022, the fastest increase in nearly 20 years. In order to understand net lease trends, it is first necessary to understand what net leases are. By 2022, ALDI will bring its total number of US stores to nearly 2,500. www.aldi.us Average Cap Rate 4.18% 12 mo avg with 10+ yr lease term Average Property & Lease Credit Rating Average Cap Rate Trend 4.65% 2021 4.35% 2022 Rates reflect last 12 mos, short and long-term Recent Sales Comps 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. Starting at just 30 days, Blueground's leases are highly flexible should you want to stay in a short term apartment rental in Istanbul, or sign a multi-year long term rental lease. 156 0 obj <>stream With an intentional focus on finding world-class, multi-tenanted assets well below intrinsic value, we seek to create superior long-term, risk-adjusted returns for our investors while creating strong economic assets for the communities we invest in. Copyright 2023. It is expected the QSR sector cap rates will remain compressed into the first half of 2022 as this sector remains to be a highly sought-after investment opportunity. 0 Banks continue to be a focus for investors given the strong credit of the tenants. The sector is largely dominated by Walgreens transactions. 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. The RealtyRates.com quarterly Market Survey includes sales, rent, occupancy, and operating expense data, together with eepense ratios, cap rates and gross rent and effective gross income multipliers for seven core commercial property types including apartments; warehouses and distribution centers; flex/R&D facilities; CBD and suburban offices; and anchored neighborhood and community and unanchored strip retail centers. This additional aid to funds is expected to boost economic growth and push up both inflation and interest rates. However, one remedy is a clause that requires the successor lessee to use the lender to finance the new GL. to a ground lease needs to be refinanced with only 20 years remaining on the ground lease, the expected valuation decline can make this exceptionally difficult. Conversely, anything that lowers the risk profile drives cap rates lower, which means that the market value of the property rises. Once the lease expires, the lessor becomes responsible for paying the property taxes. Industrial outdoor storage facilities are gaining interest with investors, and last mile distribution hubs remain a top favorite. In addition, interest rates are rising, inflation is at a 40 year high, and housing affordability continues to be a major issue. It does the rest. Further, QSRs typically offer a lower price point and a higher percentage of absolute NNN lease types for investors compared to other sectors. For the best in commercial real estate financing, Assets America is the smart choice. The Boulder Group is a boutique, Chicago-based investment real estate services firm specializing in transaction and advisory services for single tenant net lease properties. We came to terms with the Seller, entered into a purchase agreement and opened escrow. 2021 Net Lease Industrial Sales and Cap Rates. The first is that the lessor takes possession of all improvements that the lessee made during the lease. If you are an Accredited Real Estate Investor and would like to learn more about our investment opportunities, contact us at (800) 605-4966 or info@fnrpusa.com for more information. On one hand, interest rates are rising. While its possible that average rates could fall further, the more likely scenario is that cap rates will fluctuate during 2022 but remain at sub-6.0 percent levels as the industrial sector continue to attract strong interest from all investor groups. In just the last year, weve seen a 14-basis point decrease, and rates have been below the 6.0 percent mark for six consecutive quarters. Casual dining companies that were able to adapt to a fast-casual dining model have been able to have the best success. The rent escalation clause provided for a 10% rent increase every five years. Consumer views on both present and future economic expectations continue to downgrade from the pressures caused by inflation and the lack of available goods caused by global supply chain issues. Great experience. We expect to see more of the same in quarters moving forward as developers and investors seek sites suitable for and/or equipped with new drive-thru prototypes for these brands. Great experience with Assets America. Totally amazing. Cap rates tend to move in conjunction with the 10-year treasury suggesting that additional increases are on the horizon, especially for riskier assets. As we enter 2022, the net lease market is working to digest a substantial amount of news, both good and bad. Despite job loseand salary disparities as a result of COVID-19, a significant gain in spending is expected to be seen towards the end of 2021 due to both increased consumer accumulated savings and widespread government stimulus payments. I highly recommend them to anyone needing commercial financing. Founded in 1997, the firm has closed over $6 billion of net lease property transactions. A ground lease is more complicated than regular commercial leases. : Net leased properties should be conservatively underwritten with manageable debt loads that have fixed interest rates, strong locations, and high quality tenants. The yield on the 10-year Treasury note got an extra boost in Q1, as economic conditions have mended and Congress began to roll out a third stimulus payment. The first store opened in Seattle, followed by Kansas City, Denver, Chicago, and one in Portland, OR. Retail trade sales recorded an increase of 26.9% YOY while motor vehicle and parts were up 71.1%. Lenders want the GL to serve as collateral should the lessee default. In 2021, auto manufactures sold 15 million new vehicles, which is 2.5% more compared to 2020. We can help finance the purchase, construction, or renovation of commercial property through our network of private investors and banks. Because of this shift in consumer behavior the auto industry is reviving at a faster than expected rate. Net Leased C-Store and Gas Station Portfolio Sold. Tenant pays base rent plus their share of property taxes, insurance, and maintenance. "Low interest rates and substantial amounts of investment capital chasing stable yields created an active net lease market. At year-end 2021, the single-tenant industrial sector shattered records for both quarterly and annual investment sales volume. 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. Tenants with less financial strength push cap rates higher because they present more credit risk. As we look ahead, the trajectory of the pandemic and vaccine rollout will undoubtedly shape the 2021 economic landscape. For example, the location, tenant, market, finishes, and condition are additional factors that must be considered in the valuation of a property. The number of properties trading hands in this sector increase back to historical averages, 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 & sizable returns. A flight to quality locations resulted in about half as many Q1 transactions compared to Q4. Average cap rates have stayed historically consistent in the mid 6% range, and recorded at 6.65% in Q1. who want exposure to commercial real estate assets, but not the hassle of managing them on a day to day basis. We'd love to get in touch with you about how we can assist you with your retail real estate needs. The c-store/gas station space remains to be a very active sector of net lease given the internet resistant foundation as well as being labeled as an essential business. The average cap rate compressed by 39bps from Q4 to Q1 while the average lease term has remained at 9 years. The big box sector within net lease continues to see diminished activity due to the pressure of online consumer spending and evolving square footage and business restructure. If they are the sole occupant, their share is 100%. As consumers focus their spending on goods, US retail and food services increase by 0.3% YOY November 2021. As an alternative, a ground lease could theoretically refer to some objective third-party index for long-term capitalization rates for real estate investments at the time of the rent reset. We leverage this experience to identify and present the most promising deals to our investors. Analysis has accounted for sales as reported to sources deemed reliable in the following sectors: Automotive, Bank, Casual Dining, C-Store, Dollar Stores, QSR, Medical, Pharmacy, Childcare, Fast Casual, Grocery, Big Box, and General Retail (Fitness, Hardware, Furniture, Cellular Stores, etc.). Once the lease expires, the tenant turns over the property improvements to the owner, unless there is an exception. The following data has been collected from sources deemed reliable; it may not include confidential and/or proprietary information of the marketplace. All Rights Reserved. The following data has been collected from sources deemed reliable; it may not include confidential and/or proprietary information of the marketplace. Here are some components that go into structuring a ground lease: The lease must be sufficiently long to allow the lessee to amortize the cost of the improvements it makes. First National Realty Partners is one of the countrys leading private equity commercial real estate investment firms. Having them on our team meant that we could always receive truthful, timely and accurate answers to our questions. The current edition is 1st Quarter 2023 edition (4th Quarter 2022 data). As restrictions continue to be lifted, activity in casual dining will start to resume to a new business model normalcy. Since the pandemic, we havent seen a quarter with more than 10 trades in this asset type. In the retail sector, they inched up a few basis points to an average cap rate of 5.88% and in the industrial sector they averaged 6.77%. This will allow you to earn income and possibly capital gains. National Net Lease Group: Q2/2022 Retail Report, National Net Lease Group: Q4 2021 Retail Report, National Net Lease Group: Q4 2021 Medical/Office Building Report, More Drive Thrus (2-3 Lanes) and Smaller Dining Rooms, Contactless Payment/License Plate Recognition, New Contactless Services/Smoothie Making Machines & Salad Robots, Ecommerce Grocery Landscape Transformation. How to Build a Strong Commercial Real Estate Portfolio, How to Invest in Shopping Centers Through a Private Equity Real Estate Firm. Ronny is fantastic. While Q1 saw the number of big box trades increase to 6, from 2 in Q4, diminished activity is expected to continue through 2021 as owners are tasked with trying to resolve big box space use options. Annual Online Subscriptions include access to both HTML and PDF versions and all previous editions, as well as such other free resources as Excel templates, special reports, software, and investment and financial calculators. 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). hbbd```b``a Dr\1 LjI#xXW2=@Oq>"&xHTz/? 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. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); document.getElementById( "ak_js_2" ).setAttribute( "value", ( new Date() ).getTime() ); This field is for validation purposes and should be left unchanged. The lender controls insurance proceeds stemming from casualty and condemnation. That control reverts to the owner/lessor upon the expiration of the lease. 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