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Cap Rate Compression, Interest Rate Movement & Equity Markets

LOS ANGELES-One of the biggest trends to keep an eye on in the retail sector is new development, which has remained quiet thus far, says Faris Lee's Ryan Tomkins in this EXCLUSIVE commentary.

By Ryan Tomkins, director of Faris Lee Investments | Updated on August 24, 2013

LOS ANGELES-Over the past several months one sentiment has remained constant—change is imminent. With the 10 year Treasury climbing over 100 basis points since May, many investors have had to adjust their investment strategy yet again. For the larger institutions that utilize creative debt strategies, interest rate movement has had a noticeable impact. Some deals have gone dead while others have needed additional equity or major restructuring.

For the smaller, single-tenant NNN deals, interest rate movement hasn’t created too much turmoil. This is due in part to many of these assets being purchased all cash through 1031 exchanges or with capital that has been sitting on the sidelines. Demand remains strong for credit tenant investment as buyers seek a stable return. Thus far into 2013, sales of single-tenant properties have increased roughly 10% year-over-year, and the average cap rate remains around 7%.   

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