The build-to-suit space, in particular, has been strong—providing offerings among a variety of sectors—noted Joshua Pardue, senior director, Stan Johnson Co. “Retail is still the largest driver, in terms of the quantity of new build-to-suits, while we are seeing plenty of activity in the industrial and medical space.

He continued, “Industrial build-to-suit projects enable companies to better match their distribution and warehousing needs with market demands. They see this when they build a large, high-volume facility near an intermodal hub to speed product to market.”

Growth of the net lease market generally—and build-to-suit in particular—continues to rise, Pardue asserted. “The overall net lease market has grown from $30-40 billion in the peak of the last cycle to $50-60 billion in annual property level trades last year. At Stan Johnson, we are finding nearly 15 to 20% of that market to be new build-to-suit projects.”

Tenants for those projects appear to be keepers too, he stated. “We recently did a study on build-to-suits to determine the frequency with which tenants renew their leases coming off new build-to suits. We looked at deals we completed ten to fifteen years ago in which the original lease term had expired and found that nearly 75% of our sample size renewed that lease.”

Motivation from net lease buyers comes from a variety of goals, noted Douglas Longyear, managing director, national net lease investments, Cushman & Wakefield. “People think net lease buyers are driven by the ability to defer their capital gains taxes but that's a byproduct of wanting to sell a capital intensive property—such as a multifamily office building—and getting out of the day-to-day decision making.

“The second bigger driver,” he said, “is the opportunity to increase cash flow. If you have an owner looking to sell in New York or some other area with low cap rates, like 4s, they can buy net lease properties with five to 6.5% cap rates, achieving those first two objectives.”

But ultimately, deal making comes back around to the people in the business, said Ralph Shiley, partner, Scannell Properties. “It's the brokers that we have a relationship with [that drive the terms of a deal]. When we're repeating business, we know the reputation and we're able to meet specifications in a more cost effective way. The project cost should be very tight and that's where relationships pay.”

NEW YORK CITY—A high volume of deals, and continued interest in a variety of sectors, have left the net lease space in good stead—market conditions that are likely to continue throughout this year, according to industry experts who spoke last week at RealShare Net Lease here.

“Our first quarter was great,” declared Gino Sabatini, managing director, W. P. Carey. “Including the beginning of the second quarter, we closed $600 million, including a deal with a private school operator in a 25-year sale leaseback deal with a 7.2% cap rate.”

Added Jack Genende, CFO/partner, U.S. Realty Advisors, “In late 2015/early 2016, we acquired over $500 million in mission critical, single-tenant net lease transactions because those firms were signing longer term, 15-25 year agreements; whereas we previously were seeing 13.5 to 20 years. That's encouraging.”

Lexington Realty Trust likely will be “net sellers for the next six months,” asserted Richard Rouse, vice chairman and CIO, but that doesn't mean he's bearish on the market. “The good news is, prices have been so crazy, no one has to worry about gains.”

The build-to-suit space, in particular, has been strong—providing offerings among a variety of sectors—noted Joshua Pardue, senior director, Stan Johnson Co. “Retail is still the largest driver, in terms of the quantity of new build-to-suits, while we are seeing plenty of activity in the industrial and medical space.

He continued, “Industrial build-to-suit projects enable companies to better match their distribution and warehousing needs with market demands. They see this when they build a large, high-volume facility near an intermodal hub to speed product to market.”

Growth of the net lease market generally—and build-to-suit in particular—continues to rise, Pardue asserted. “The overall net lease market has grown from $30-40 billion in the peak of the last cycle to $50-60 billion in annual property level trades last year. At Stan Johnson, we are finding nearly 15 to 20% of that market to be new build-to-suit projects.”

Tenants for those projects appear to be keepers too, he stated. “We recently did a study on build-to-suits to determine the frequency with which tenants renew their leases coming off new build-to suits. We looked at deals we completed ten to fifteen years ago in which the original lease term had expired and found that nearly 75% of our sample size renewed that lease.”

Motivation from net lease buyers comes from a variety of goals, noted Douglas Longyear, managing director, national net lease investments, Cushman & Wakefield. “People think net lease buyers are driven by the ability to defer their capital gains taxes but that's a byproduct of wanting to sell a capital intensive property—such as a multifamily office building—and getting out of the day-to-day decision making.

“The second bigger driver,” he said, “is the opportunity to increase cash flow. If you have an owner looking to sell in New York or some other area with low cap rates, like 4s, they can buy net lease properties with five to 6.5% cap rates, achieving those first two objectives.”

But ultimately, deal making comes back around to the people in the business, said Ralph Shiley, partner, Scannell Properties. “It's the brokers that we have a relationship with [that drive the terms of a deal]. When we're repeating business, we know the reputation and we're able to meet specifications in a more cost effective way. The project cost should be very tight and that's where relationships pay.”