Despite retail bank headwinds, The Boulder Group cites tenant credit and low interest rate as the primary reasons. Managing Principal, National Net Lease Group & Investment Properties Group, 949.698.1116 We expect to see more of the same in quarters moving forward as developers and investors seek sites suitable for and/or equipped with new drive-thru prototypes for these brands. The firm provides a full range of brokerage, research, advisory, and financing services nationwide. The CRS captures 3,600 cap rate estimates across more than 50 geographic markets to generate key insights from a wealth of data. As more people return to work and school, the need for C-Stores will increase. Data is provided for 12 regions and 45 metro market areas encompassing the entire continental U.S. Just $159 per office (not per user) per year. Market activity greatly surpassed expectations in fourth quarter 2020 as investors rushed to close deals before year-end. Figure 1 shows the degree to which multifamily and industrial yields dominate the lower end of the pricing curve. endstream endobj startxref *Market totals represent the studys sample sizes for select industries and are not indicative of all retail sales that occurred for all of 2021. Thats precisely what happens in a subordinated ground lease. The impact of pandemic has forever changed most restaurant business functions, especially the casual dining sector. This resulted in a record-setting quarter, where more than $12.5 billion in sales were reported. Importantly, the tenant is responsible for paying all property taxes during the lease period. CVS assets have seen an increase in trades as investors seek out to both purchase and sell quality sites in the wake of the brand announcing they will be closing 900 stores, starting in the Spring 2022. The impact of COVID-19 has forever changed most restaurant business functions. In summary, Mr. DeMita said, "Given that even individual cell towers are selling for 20-24 times ANOI or higher and, depending on the escalation provisions inherent in the lease, rooftop and ground leases are now commonly trading for 18-20 times annual rent (equivalent to cap rates as low as 5%), it is a good time to be a wireless landlord." The bad news is that the pandemic is grinding into its third year with a new, highly transmissible variant that has prompted cities like New York to reinstitute restrictions. One way to extract value from the land is to sign a ground lease. However, riskier triple net assets those with short term leases or less desirable tenants are more likely to feel the brunt of this move. As the formula above suggests, there is a direct relationship between a propertys cap rate and its value. For this report, SRS reviewed Q4 2021 sales reported by Costar for the following sectors: Automotive, Bank, Big Box/Superstore, Casual Dining, C-Store/Gas, Dollar Stores, Educational (Childcare), Fast Casual, Grocery, General Retail, Medical STNL, Pharmacy, and QSR. In the retail sector, they inched up a few basis points to an average cap rate of 5.88% and in the industrial sector they averaged 6.77%. Cap rates inflated by 32bps from 6.35% in Q4 to 6.67% in Q1. As we focus on 2021 and beyond, here are a few key indicators to note as the retail industry continues to adapt to pandemic-driven changes. Would refer them to all our business associates. We expect to see a large influx of dark or subleased CVS assets hit the market throughout the year ahead. Bank properties with the longest leases typically display attractive traits including relocation branches and modern prototypes. This increase could create challenges for buyers to obtain ideal financing. $^A`Y` `vX\L*#A&4DX "eUu1$c` ^(I l Average Cap Rate 3.60% 12 mo avg with 10+ yr lease term Average Property & Lease Credit Rating Average Cap Rate Trend 4.0% 2021 3.63% 2022 Rates reflect last 12 mos, short and long-term Recent Sales Comps Tenant News Featured Tenant Profiles Circle K Walgreens Pharmacy 5.00% Pizza Hut Avg. If you prefer, you may also subscribe or order offline via US Post. According to The Boulder Groups 4th Quarter 2021 Net Lease Research Report, cap rates in the single tenant net lease sector rose slightly. The lenders requirements for applying the condemnation proceeds and controlling termination rights mirror those for casualty events. Having them on our team meant that we could always receive truthful, timely and accurate answers to our questions. Pricing and overall investment demand for casual dining has increased as investors have seen the success of the changes in this industry. Unsurprisingly, lenders want the insurance proceeds to go toward the loan, not property restoration. While these were slight increases, they remain at historically low levels driven by low interest rates and a significant amount of institutional capital chasing the stable yields that net lease properties can deliver. The yield on the 10-year Treasury note got an extra boost in Q1, as economic conditions have mended and Congress began to roll out a third stimulus payment. Source: Stan Johnson Co. Research, Real Capital Analytics. We'd love to get in touch with you about how we can assist you with your retail real estate needs. $100 million purchase price 6% going -in cap rate $35 million equity contribution $65.0 million loan 65% LTV fee simple value; 9.2% debt yield $49.2 million Leasehold Value 8% cap rate All Rights Reserved. endstream endobj 58 0 obj <>>> endobj 59 0 obj <. By 2022, ALDI will bring its total number of US stores to nearly 2,500. www.aldi.us Average Cap Rate 4.18% 12 mo avg with 10+ yr lease term Average Property & Lease Credit Rating Average Cap Rate Trend 4.65% 2021 4.35% 2022 Rates reflect last 12 mos, short and long-term Recent Sales Comps They are gross leases, modified gross leases, single net leases, double net leases and triple net leases. In a gross lease, the commercial property owner pays for them. At the other end of the spectrum, a property like a hotel has higher risk so they command a higher cap rate / lower purchase price. As the previous paragraph described, they rose slightly in 4Q21, but at the outset of 2022, there is some uncertainty about what will happen. Ronny is fantastic. Great experience. Due to the attractiveness of assets with these attributes, many of them are being traded before coming to market, closing with cap rates in the low- to mid-5% range. Commercial real estate property valuations are driven by a number of factors, but two of the most important are the tenant lease type and the prevailing cap rate(s) in a given market. As expected, the last few quarters have seen compressed cap rates, even falling below the 6.0 percent mark for back-to-back quarters in mid-2020. Although single-tenant industrial activity remains far from record-setting levels, the sector continues to outperform within the net lease market and accounted for 47 percent of second quarter 2021s sales volume. The discount dollar sector continues to be one of the most highly sought-after spaces as investors target growth opportunities. Strong activity throughout the sector shouldnt come as a surprise though. Totally amazing. How to Build a Strong Commercial Real Estate Portfolio, How to Invest in Shopping Centers Through a Private Equity Real Estate Firm. In a gross lease, the commercial property owner pays for them. The lender must have recourse to protect its loan if the lessee defaults. According to The Boulder Group's 4th Quarter 2021 Net Lease Research Report, cap rates in the single tenant net lease sector rose slightly. Additionally, we needed 80 percent financing on our multimillion-dollar purchase. To that point, net lease cap rates and their trends are driven by anything that increases or decreases the level of risk associated with the property. The single-tenant industrial sector is on pace to have its best year ever. But, supply constraints for net leased properties and high investor demand provide conflicting evidence that they may be more stable than the treasury move would suggest. Moodys Analytics reports retailers should see notable gains, forecasting 6.2% growth in core retail sales through 2021. Expect this sector to continue to outperform other sectors as flight to safety and recession resistance remains to be a target for investors. Cap rates tend to move in conjunction with the 10-year treasury suggesting that additional increases are on the horizon, especially for riskier assets. Regardless of the investor class, bank branch deposits, in-place rental rates and physical real estate locations will be top of mind for investors. Cap Rates in 4Q21. Basically, the provision would allow any legal purpose for the property. But buyer demand is strong across virtually all industrial subtypes. The region may also see record-setting activity, as with nearly $8.5 billion reported, year-to-date investment activity has already surpassed 2020 annual totals. Tables may be inserted directly into appraisals and similar business reports. Regarding condemnation, lenders insist upon participating in the proceedings. Over the last few years, investors have been gravitating toward industrial product for several reasons. The second is that the lessee must demolish the improvements it made. Assets America is a great company to work with. As we look ahead, the trajectory of the pandemic and vaccine rollout will undoubtedly shape the 2021 economic landscape. In fourth quarter, activity reached $18.3 billion, representing a 37 percent jump from the previous quarter and a 38 percent increase from fourth quarter 2020. The good news is that the unemployment rate is falling to historic lows, the government is set to invest a record amount in national infrastructure, and wages are rising across the board for workers as companies compete for talent. We later used Assets America for a unique equipment financing deal where once again Ronny and team exceeded our expectations and our timeline. In Q4, cap rates compressed 18 bps to 6.05% while average term, rent, and price/sf remain relatively flat. 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