O ffice properties occupied by Sprint Nextel Corp. and Motive Inc. are
among the assets purchased in 2007 by an all-cash JV between Boulder Net
Lease Funds LLC and Orix Real Estate Capital Inc. The Sprint Nextel building (left) is a 146,591-sf asset in Kansas City, MO, and the 117,314-sf Motive
facility (above) is located in Austin, TX.
while the buy-and-flip days of this cycle
may be over, buy-and-hold strategists
are fairly optimistic that 2008 will ultimately turn out to be a good year for
the net lease sector, thanks to some
adjustment in pricing and cap rates,
less competition from certain buyer
groups, a renewed focus on risk levels
and property fundamentals and a debt
market that will make it even more
compelling for many corporations to
“Since August,
there’s been a
greater focus on
the potential
risks and a
little more
sanity in the
marketplace.”
GORDON F. DUGAN
W.P. CAREY & CO.
seek sale-leasebacks.
“2007 was an interesting year, but
we think it was a good one,” relates
Gordon F. DuGan, president and CEO
of New York City-based W.P. Carey &
Co. “We were concerned that
investors weren’t paying enough attention to risk in the net lease world. But
since August, there’s been a greater
focus on the potential risks and a little
more sanity in the marketplace. That’s
a welcome change, even if it’s made
things more difficult.”
A return to normalcy is precisely
what many net lease players say has
started to take hold. And after several
years of accelerating transaction volumes, rising prices, declining cap rates,
and little differentiation between high-quality deals and lesser-quality ones, it
seems just about everyone—except for
those with properties they need to
sell—is welcoming the market shift.
“Disruptions are good for the market,”
relates Bernard J. Haddigan, an
Atlanta-based SVP and managing
director of the national retail group at
Marcus & Millichap Real Estate
Investment Services, who also leads
the firm’s net lease properties division.
“This is somewhat of a beneficial
time for us on the acquisitions side,”
agrees MacDonald. “It’s hard to find
and make deals, but the fact that it’s
volatile creates opportunities.”
Randy Blankstein, president of the
Boulder Group and Boulder Net Lease
Funds LLC in Northbrook, IL, sees a
move toward greater stability in the
coming year versus 2007, where
“things were going kind of overboard
in terms of aggressiveness,” he says. A
renewed focus on asset fundamentals—
such as the quality of a property, its
rental stream, a tenant’s credit quality
and market demographics—rather than
acquisitions being fueled by cheap and
free-flowing debt, will result in a return
to more conservative underwriting and
a longer-term approach to investing,
he adds. “I think this is a transition
period for the net lease industry.”
With market froth a thing of the
past, those active in the net lease sector
contend that despite all the doom-and-gloom hanging over anything labeled
real estate, they remain optimistic. To
be sure, the credit crunch has slowed
down the pace of deals and reduced
the inventory of properties for sale.
Haddigan, for one, estimates that the
number of available net lease proper-
“It’s hard to
find and make
deals, but the
fact that it’s
volatile creates
opportunities.”
BRUCE S. MACDONALD
NET LEASE CAPITAL ADVISORS
ties in the third quarter of 2007 was
roughly half of what it was a year earlier. Transaction volume since mid-summer through early December was
off anywhere from 20% to 40%,
according to various industry sources,
Blankstein says.
But that is not likely to be a long-term phenomenon. On the whole,
industry professionals anticipate the
net lease and sale-leaseback space to
see a rise in deal flow and transaction
