Sale leaseback originations for 2011 and 2012 continue to be relatively modest. The continued lack of significant store development by most retailers indicates that activity on the corporate sale leaseback side probably won't be picking up in the short term.
It is likely the direction of the economy will be a bigger factor upon slower new store development than the future "Amazon" impact. Currently, the general health of the sale leaseback sector is improving along with the economy's recovery.
Most of the activity in this sector has been in the one off after market for both traditional retail and restaurant product. There continues to be a shortage of product one off product especially in the Northeast.
The non restaurant sector has seen high velocity especially in the drug store sector (CVS, Walgreens) as well as a significant increase in the activity with Rite Aids. Cap rates have compressed dramatically during the last year. Drug stores are now being viewed as more of a health care play than a pure retail offering.
The shortage of restaurant product has seen a dramatic increase in the offering of franchisee operated restaurants. Cap rates have decreased for even smaller franchisee owners.
The sector with the biggest growth in one off investment sales has been in convenience store/ gas stations. Investors have come to understand the product and activity has been brisk.
There does not appear to be a significant rise in listing of properties for sale due to investors' concern with potentially higher tax rates in 2013.
The demand for product created by sellers wanting to utilize section 1031 tax deferred transactions also appears to be consistent with prior years.
The general consensus is that although net lease product of all types is scarce, net lease buyers who have traditionally stayed away from the retail/restaurant sectors, will continue to do so.
Financing continues to be plentiful for transactions supported by investment grade credit tenant leases. For non investment grade credit tenants, financing for well located properties, with reasonable remaining lease term is available from local banks. Recently the CMBS market has become available again for a limited amount of non investment grade deals with strong location sales.
Activity in the one off retail and restaurant will continue to be strong based upon the continued availability of attractive financing, hampered somewhat by the diminished supply of product.
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Jonathan Hipp
Jonathan Hipp began his career in real estate over 25 years ago. In his early years as a broker, he ventured into the net lease industry and quickly began leading the US net lease market, closing over $3 billion in transactions. In 2005, Jon founded Calkain Companies, a company focused solely on net lease investment services. As President and CEO, he has been instrumental in building the firm into one of the leading Net Lease real estate companies, transacting over $12 billion of net lease deal volume over the past 13 years. He has expanded Calkain’s services to include brokerage, advisory, asset management, capital markets, and industry research. He has become a well-known resource, panelist, and speaker at various Net Lease and Industry conferences and is a regular contributor to GlobeSt.com on real estate trends. In June 2015, Jon’s passion for the real estate business was again recognized as he was nominated for the Top Real Estate Player in the DC area by SmartCEO magazine.
