focuses on larger office and industrial
properties, thinks in some instances
cap rates could move upward by as
much as 50 or even 100 basis points.
And Olsen of Prescott GNLP Capital,
which has a preference for office and
industrial deals in the $15-million to
$50-million price range, expects a
change of 75 to 100 basis points when
all is said and done.
“The way the capital markets work
is that people get creative in order to
attain the cap rates they need,” notes
MacDonald. “The problem is that it’s
been a seller’s market for three solid
years and we’re finding that sellers are
still slow to respond.”
Macnab says it is inevitable that cap
rates will go up, although there has
been little indication of that thus far.
“But the cost has gone up, the risk premium should make equity more
expensive and cap rates should
increase, particularly for assets with
“I think this is
period for the
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the net effect
will be positive.
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below-investment grade tenants.
“We’re currently selling a
Walgreens, and it appears the cap rate
is going to be essentially the same as
last year,” Macnab added.
Many expect that 2008 will also
bring a return to an emphasis on quality in net lease deals, something that by
all accounts has been lacking from the
market in recent years. So prime
assets—whether they be located in
major markets or leased to blue-chip
tenants like Walgreen Co., for example—will still be in strong demand and
may not see much of a change in pricing, the experts suggest. But secondary
deals—those lesser in quality in terms
of the physical asset, location, tenant
credit or have any sort of complications—will not see the same type of
froth as in recent times, they say.
Blankstein, for one, asserts that such
differentiation is “long overdue.”
“Three years ago when people were
doing their underwriting, there was
much less scrutiny of the credit or the
strength of the underlying tenant,”
Haddigan observes. “Buyers today are
much more careful, as are the lenders.”
Macnab agrees. “Certainly for most
people who were executing transactions without paying attention to risk
management, those days are over,” he
Perhaps the greatest area of optimism as we head into 2008 is in the
sale-leaseback arena, where professionals anticipate the market to
strengthen in terms of transaction volumes and acquisition opportunities.
Indeed, some say they are already seeing increased deal flow.
“It will be a good year,” predicts
Jeffrey S. Thomas, a first vice president
in CB Richard Ellis Group Inc.’s Seattle
office and a member of the net lease
properties group. “It seems that volume