Net lease REITs should continue to reap healthy deal volume over the near term, with historically tight credit spreads and easy access to capital creating more-than-favorable conditions for the sector. 

A new analysis from Baird Equities shows that cap rates declined 9 bps to 5.91% for retail net lease, and indicated that while lower-quality product is coming online, supply of high-quality assets with long-term leases for sale remains tight.  The firm examined bank loan and corporate debt for scores of top tenants and also noted that while a subset of tenants are showing debt yielding higher than B-rated debt—concentrated mostly in theater, fitness, family entertainment and early education—the cost of debt has improved for some of those, including marquee brand LA Fitness.

Perhaps unsurprisingly, buffets are feeling the pain. Fresh Acquisitions LLC/Buffets LLC and Platinum Corral (Golden Corral's second-largest franchisee) both declared Chapter 11 bankruptcies last April, and though market liquidity is helping other similar tenants survive in the short term, they are laboring under increasing operational pressures due to COVID.