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Net Lease Owners: Is Now the Time to Sell?

The net lease market is currently highly advantageous for the potential seller.

By Jonathan Hipp | Updated on September 05, 2012

The net lease market is currently highly advantageous for the potential seller. Demand for net lease properties – especially credit tenants in prime locations – heavily outweighs supply. Cap rates are dropping to levels not seen since 2007 and more investors are getting comfortable with franchisee credit, shorter lease terms, or private non-rated companies. In short, we could be witnessing an historic sellers market that intelligent investors should take advantage of.

The entire net lease market has seen compressing cap rates. A combination of multiple factors has led to this declining cap rate environment. First, low interest rates and a low yield investment environment have heavily impacted cap rates. Because cheap debt is available and the risk free investment returns are so low, investors are able to pay premiums (lower cap rates) for net lease assets and still achieve a spread that is appealing in today’s market. Unlike the 2007 environment where interest rates hovered in the mid to high 4.00% range – current interest rates are below 2.00%. This environment has fostered an unbalanced demand for net lease properties.

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