been discussion about medical use that isakin to retail-oriented properties.
Property owners are installing urgentcare medical centers into their tenantmixes. It’s viewed as the same real estateand demands similar rents, but the buildings are more specialized. Due to therecalibration of assets for different uses,landlords are mulling adaptive reuse andnon traditional construction materials,according to Just. “About 20 years agomultiple users could find a way to use asimilar building, now everyone has specialized prototypes,” he said.
MISMATCH INVESTORS JOIN FORCESTo overcome crowding in the net leasesector, joint venturing has become a common strategy. Smaller developers areteaming up with larger institutionsbecause they need to deploy capital. Insome instances, institutional investorshave been chasing developers instead ofsites, so that they have an investmentvehicle, according to Just.
It’s gotten to a point that many players,whether a high net worth investor, familyoffice or institutional investor have seen somuch competition on the triple net market, now money is fighting to deploy capitaland is getting very creative to win sponsorswho have tenant relationships and can putdeals together, he added.
In the case where developers aren’t
THE BUMPY OR SMOOTH ROAD
empowered to build and need to main cer-
tain return threshold, they’ve brought
existing cash flowing assets, and is why sale
leasebacks and the vast majority of net lease
properties on the market are trading hands,
according to Blankenstein.
Net lease investments are expected toremain an attractive investment in thecoming years. In 2019, the sector sawrecord cap rate compression as playersjumped in, according to Blankenstein.
Year-over-year cap rates for all of 2019were down the most significantly for industrial and retail properties, according to TheBoulder Group. Cap rates for industrialproperties fell for the second straight year,declining 19 basis points. Retail cap ratesfell 18 basis points, which was a reversal of2018 when they increased by 18 basispoints.
Investor certainty around interest rateswas influential to record cap rates in 2019.“The expectation of the last few years hasbeen interest rates are probably going up sopeople are waiting to buy because priceswill go down,” Blankstein said. “But nowpeople think we’re in a stable interest rateenvironment that is probably not changingfor a year. So, it’s really causing the marketto heat up because you can buy with somestability at the moment.
Activity in the sector has no plans onslowing down. If there is a recession likemany expect in the market or there will besome sort of downward pressure on rent,investors see now as a good time than everto get into net lease investments because ofthe stability of cash-flow. “That’s why themarket is still driving prices lower. Cap ratesdown in the 6’s are still favorable comparedto the apartment market, treasury bondsand other alternatives if you’re a conservative, older investor,” Blankenstein said.
Economic growth should stay moderatedespite very low interest rates and inflation, and current global conflict may notbe as economically threatening as itappears, Barbara Byrne Denham, senioreconomist at Moody’s Analytics, recentlytold sister publication, GlobeSt.com. “TheU.S. economy continues to face risks fromglobal political tensions and uncertainty,but it has weathered these threats for 10years. As for the commercial real estatemarket, it should continue to grow in stepwith the overall economy in 2020 as it hasover the past 10 years.”
Geopolitical tension may cause exposurefor certain aspects of the economy butcould even serve net lease well, accordingto Blankensein. “If anything, it probablyhas a positive consequence on our marketbecause when those geopolitical eventsstarted, the 10-year Treasury actually camedown.” ◆
New Horizons for Net Lease
. . . continued from page 22
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cannot be guaranteed.
3 Yardi Systems INC
5 TEN-X, INC.
7 Burnhammoores Centre for Real EstateUniversity of San Diego
9 Marcus & Millichap
23 W P Carey INC
27 Bellwether Enterprise
29 CIBC World Markets
33 Lee & Associates
35 AG Net Lease Acquisition CORP
C4 Walker & Dunlop LLC