(RealShare Orange County convenes at the Hyatt Regency, Irvine, August 16. In addition, save the date: RealShare Net Lease West comes to The California Club, Los Angeles, November 1 - 2.)
IRVINE, CA-There is more activity now in net lease transactions than ever before. So says Maurice Nieman, a vice president of investment sales at Colliers International’s Irvine office, who exclusively chatted with GlobeSt.com on the subject. “With historic low interest rates, investors have been looking to move money from banks, treasuries and other financial instruments into net lease investments,” he says. “As a result we’ve built up a lot of momentum over just the last nine months.”
The positive velocity has driven sales which are now starting to show up in the comps, Nieman says. “Investors are looking at that and gaining confidence that this investment option is strong.”
Nieman explains that from 2008 to 2010, when the firms wanted to sell properties, there were no comps in the marketplace because very little was being traded and people were sitting on the sidelines. “Now we’re gaining momentum with property values increasing again.”
This increased activity is also causing a supply/demand imbalance, he says. Assets that have very good credit tenants such as Wells Fargo and McDonalds are getting multiple offers and unbelievably high prices, he explains.
Nieman points to an example, if you look at the multi-tenant retail market, “there is a huge difference in value between core and non-core because right now there is a flight to quality. A core asset with a well-known brand such as Ralphs or CVS is more sought after than non-core assets with non-branded retailers such as Hispanic grocery, Ross or 99 Cents,” he says. “The same is true for net lease. There is huge disparity in pricing between a branded Walgreens versus Rite Aid. However, there are great values to be had if a client is willing to take the risk.”
On how values have changed, Nieman says that over the last 12 months, the cap rate for Rite Aid have moved from mid to high 9 to 8 cap. Walgreens was selling over a 7 cap and its now at a 6 cap rate. Fast food brands such as McDonalds had historically sold in the 5 cap range, now they are seeing a 4 cap, he says. “So as you can see there has been at least a 100 basis points shift in cap rates over the last 12 months.”
Financing Options?
There are a lot of options out there, says Nieman. “It went away for a few years but now everything from conduit financing and CMBS to securitized is back and we can now get deals done 65% to 75% LTV with non-recourse.” Even individual banks and life insurance companies are lending again, he says. “Plus high net worth individuals have returned to the market.”
Basically, he says, there is a lot of money out there. “If you have a good asset, net lease, good sales and a long-term lease you can get financing.”
Demand?
The demand is there, he tells GlobeSt.com. “It is everywhere,” he says, and his firm is working on deals with buyers across from country. “It’s all driven by the same objective, take money out of low yield financial instruments and put it to work in other ways.”
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
