Note: This is an excerpt from the newest Calkain & Chandon Net Lease Economic Report, due to be released next week. If you'd like to receive a free copy, feel free to Sign Up.
Investors' reduced tolerance for risk-taking was a primary driver of demand for well-tenanted net lease assets during the throws of the downturn. As the economic and real estate outlook has improved, however, demand for net lease properties has remained resilient. During the third and fourth quarters, property prices held onto their recent gains. Investment sales picked up in the last few weeks of the year. Higher risk-free interest rates were absorbed into spreads while cap rates increased on the margins.
The growing relevance of the net lease sector as a target for institutional capital is contributing to stickiness in prices. Time-on-market has lengthened for some properties as a result, but it is too early to infer a sustained trend. Overall, the sector's current investment profile reflects a long-term shift where net lease properties are becoming a more integrated component of the commercial property portfolio.
The commercial property investment climate has improved markedly over the course of the last year. During the third and fourth quarters of 2013, buyers and sellers engaged across a wider range of properties and metro areas than at any time since the financial crisis began. Secondary markets, small- and mid-cap properties, value-add investments, and development opportunities all featured more prominently. In support of property sales, balance sheet and conduit lenders have loosened underwriting criteria, assented to greater risk-taking, and ramped up lending volume in kind. That trend is expected to continue. In the most recent RELA-Chandan Survey of Commercial Real Estate Lender Sentiment, banks and other capital providers project overwhelmingly that lending volumes will rise in 2014.
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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.
