It is no secret cap rates for net lease properties, and investment real estate in general, have compressed dramatically in the last few years. This trend is especially pronounced for properties with investment grade tenants and long lease terms which are trading at all time low cap rates.
With voracious demand, however, comes the question of supply. The inventory for high quality net lease properties is falling. While development is picking up, it has yet to have a notable impact on supply. Moreover, properties with shorter lease terms, and overall lower quality, are now being brought to the market to exploit the low cap rate environment.
This trend has a two implications. First, it means going forward buyers focusing exclusively on high quality net lease properties will have to pay a larger premium. Second, it means those searching for yield must shift their focus to riskier assets. Nonetheless, the market is changing and buyer and sellers alike need to adjust their strategies to maximize returns.
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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.
