GlobeSt.com recently chatted with Brad Pepin, senior director of Stan Johnson Co., to talk about all things net lease including interest rates, if sellers should try to time the market and more.
GlobeSt.com: Is now the time to sell your net leased asset?
Brad Pepin: We've seen upward pressure on interest rates with the Federal rate increases. As they move up, cap rates usually follow within three to six months. I don't see huge movement in cap rates in the next 12 months: just gradual increases that reflect the slightly higher costs of capital. Now is the time for sellers to take advantage of the relatively low cap rate environment and monetize their investment.
GlobeSt.com: Should sellers try to time the market?
Pepin: All indicators tell us that cap rates will rise before they'll fall. While your property still has plenty of lease term remaining, it's time to put yourself ahead of the crowd. Price your deal right to get buyers' attention—or they'll find yield somewhere else.
GlobeSt.com: Are you much concerned about increasing interest rates?
Pepin: It's not a huge concern, but if cost of capital rises, yields will go down. Commercial development is still strong. A correction could happen soon, but I don't expect a major correction.
GlobeSt.com: Are any markets especially promising?
Pepin: Velocity of CRE transactions are always higher in primary and strong secondary markets, but those markets typically provide lower yields. Middle-market assets with solid fundamentals and market-based rents will always be winners. Small tertiary markets provide more yield, but must be underwritten more thoroughly to avoid losses in long-term vacancies, etc. It always comes back to the big three: location strength, lease strength, and tenant credit strength.
GlobeSt.com recently chatted with Brad Pepin, senior director of Stan Johnson Co., to talk about all things net lease including interest rates, if sellers should try to time the market and more.
GlobeSt.com: Is now the time to sell your net leased asset?
Brad Pepin: We've seen upward pressure on interest rates with the Federal rate increases. As they move up, cap rates usually follow within three to six months. I don't see huge movement in cap rates in the next 12 months: just gradual increases that reflect the slightly higher costs of capital. Now is the time for sellers to take advantage of the relatively low cap rate environment and monetize their investment.
GlobeSt.com: Should sellers try to time the market?
Pepin: All indicators tell us that cap rates will rise before they'll fall. While your property still has plenty of lease term remaining, it's time to put yourself ahead of the crowd. Price your deal right to get buyers' attention—or they'll find yield somewhere else.
GlobeSt.com: Are you much concerned about increasing interest rates?
Pepin: It's not a huge concern, but if cost of capital rises, yields will go down. Commercial development is still strong. A correction could happen soon, but I don't expect a major correction.
GlobeSt.com: Are any markets especially promising?
Pepin: Velocity of CRE transactions are always higher in primary and strong secondary markets, but those markets typically provide lower yields. Middle-market assets with solid fundamentals and market-based rents will always be winners. Small tertiary markets provide more yield, but must be underwritten more thoroughly to avoid losses in long-term vacancies, etc. It always comes back to the big three: location strength, lease strength, and tenant credit strength.
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
