When it comes to net lease properties, buyers and sellers often focus on investment aspects such as tenant creditworthiness, lease years remaining, and rent escalations. To be sure, these aspects are critical in the net lease arena. However, it is essential to recognize that, at the end of the day, real estate is about location, and a good location can overcome many weaknesses in fundamentals.
To illustrate this concept, below is a heat map of recently sold net lease properties in the state of Florida. The map highlights cap rates for absolute-net Dollar General stores sold since 2014, with at least fourteen years remaining on the lease. In terms of guarantor and structure, these properties are reasonably interchangeable. However, their locations are scattered across the state.
The Florida real estate market varies in strength from city to city. Miami and Ft. Lauderdale have the strongest markets, driven largely by demographic changes and tourism, followed by Pensacola and Tampa. Orlando and Jacksonville are marginally less strong, ahead of central and rural areas.
From the data, we see that a Dollar General in one of the stronger areas of the state is worth as much as fifty basis points more than a comparable property in a weaker area. Presumably, was a store placed in Miami or Ft. Lauderdale, the cap rate difference would be even larger.
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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.
