volume in 2008. It will, however,
require a bit of patience since it probably won’t take hold until the second
half. Most say the sector will start to
build momentum again in the second
quarter, after the debt market settles
down, sellers adjust their expectations
and everyone—buyer and seller, debt
investor and equity player—gets a better grasp on the new market realities.
Stephen F. Olsen, managing director of Prescott GNLP Capital LLC in
New York City, points to the last debt
market meltdown in 1998 for some historical context. “That correction took
about six months to work itself out,
and this one’s looking more like 12
months,” he suggests. “But that’s not to
say that things won’t be good in the net
lease and sale-leaseback sectors.”
“By the middle to end of the second
quarter and into the third,” says
Blankstein, “I expect a decent
rebound.” He predicts strong, though
“You’re going to
see prices soften
this year. Cap
rates will be
going up, and a
lot of inventory
will be coming
on the market.”
BERNARD J. HADDIGAN
MARCUS & MILLICHAP
not necessarily increased, transaction
volume for the full year. “I don’t think
we’re going back to 2006, but it’s not
going to be draconian either.”
Adjustments in pricing and cap rates
are also anticipated, although here,
too, the shift is not expected to be drastic. A lot still depends on what transpires in the weakened CMBS market,
but balancing its impact is the fact that
other financing sources, such as banks,
life insurance companies and traditional credit-tenant lease funding, are
expected to play a renewed role.
Furthermore, there is still plenty of
capital on the equity side of the equation. “I don’t think there’s going to be
a dramatic move in cap rates because
there’s still a large overhang of capital
from the institutions,” particularly for
assets valued at more than $5 million,
Blankstein says.
But there is wide agreement that
there will be some movement in rates.
“You’re going to see prices soften this
year. Cap rates will be going up, and a
lot of inventory will be coming on the
market,” predicts Haddigan. “There
are many owners out there trying to
figure out, ‘What is my property worth
and how do I get it sold?’ If half of this
product hits the market, it’s going to be
more than we’ve seen in a while. And
you’re going to see a lot of competition
for the capital that’s out there, which
means prices have to drop.”
It’s hard to generalize just how
much cap rates might rise, particularly in light of the range that exists in
property quality. Craig Macnab, CEO
of National Retail Properties Inc.,
headquartered in Orlando, estimates
that cap rates for investment-grade
deals could creep up 20 to 30 basis
points and for below-investment
grade tenants, perhaps 50 basis
points. MacDonald, whose firm
