GlobeSt.com: How does is compare to three years ago?

Stark: The investor demand and deal velocity was there three years ago, although on the supply side some concepts were hit hard by the recession and development pipelines dried up. This also led to more sale leaseback executions as corporations were bleeding cash and needed to transfer equity from fee owned assets to their balance sheets to enhance liquidity and pay down debt. The capital markets were also shaken up from the down turn which made it difficult for investors, developers, and corporations to secure favorable debt programs for acquisitions build to suits, and corporate debt restructures.

GlobeSt.com: What is driving investor interest in restaurants?

Stark: The long standing success of national restaurant concepts has continued to capture investor interest in markets across the country. Most concepts lease their real estate or portions thereof, which has given net lease investors the ability to secure predictable long term income streams. The deal size for most restaurants is also what drives investor demand (typically $1-5 million); there is a large national buyer pool for this deal size which is why there has always been consistent deal velocity in the space. Brand recognition is also a factor as chances are most investors have been customers at these restaurants for years, and understand the underlying success and longevity of certain concepts. Lease term and credit will always be a driver for demand and pricing, as most properties are leased 15-20 years with fixed rent increases and no landlord responsibilities.

GlobeSt.com: What types of restaurants are most attractive to investors and why?

Stark: Quick service restaurants have been and continue to be in high demand. We have seen the most acute CAP rate compression in the fast food space which has been led by the national credit ground leases I.E., McDonald's, Chick Fil-A, etc. Existing sale leasebacks with store level operating history are also in demand, as these deals provide investors with the transparency of the asset's performance typically over a 12-36 month time period; if the store level operating history is not available, than investors will look to rely more on the credit of the tenant.

Check back for part 2 of this Q&A, where Stark talks about what the future holds for investment activity in restaurants, investor competition and its impact on pricing, and where retail market is headed.