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Credit Ratings play a large role in the net lease world. A property backed by a tenant with investment grade credit will demand a premium from investors. Some of the most well known investment grade net lease tenants include McDonald's, Walgreen's and CVS. There are also many popular net lease tenants who are privately owned and have no credit rating. Tenants such as Wawa and Chick-fil-A are good examples of this. Even though tenants such as these have no public credit rating, their excellent reputation still commands low cap rates.
For a quick look at the impact of credit ratings we can look at the cap rate averages of each credit tier. Tenants with a High Grade (AA- to AA+) cumulatively averaged a 5.27% cap rate for 2014. Upper Medium Grade (A- to A+) averaged a 5.73%, Lowed Medium Grade (BBB- to BBB+) averaged 6.97% and Non-Investment Grade (B- to BB+) averaged 7.11%.
For a list of credit ratings and analysis for both rated and unrated tenants view the new Quarterly Credit Rating Report.
For more net lease research view All Reports.
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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.
