In Uncertain Economy, Single-Tenant, Net-Lease Sites Offer Investors Welcome Security, Says Expert Panel
With investors seeking predictable income and higher returns than today’s low-paying bonds, the demand for single-tenant, net-lease properties continues to grow.
That was one of the observations shared by a panel of experts on the most recent episode of the “Commercial Real Estate Show” radio program, hosted by Michael Bull of Bull Realty. Bull and his guests discussed sales volumes, investor preferences and cap rates.
The freestanding properties typically feature credit-grade tenants, often on long-term leases, who cover the buildings’ operating and maintenance costs.
The number of sales transactions in the Southeast involving single-tenant, net-lease sites increased about 30 percent in 2012 when compared with 2011, said Nancy Miller, a Bull Realty vice president who oversees thefirm’s National Net Lease Investment Group.
“From 2012 to 2013, we anticipate that leveling out a little bit because supply is going to be shorter,” Miller added. “But we are going to look at at least a 15 to 20 percent increase this year over last year’s transactions.”
Investors in particular have a hearty appetite for properties occupied by dollar stores, fast-food restaurants and auto-part stores, all of which continue to benefit from a still-sluggish economy, thelast because people are opting to keep their older cars longer instead of buying new ones, the guests noted.
Typical cap rates for single-tenant, net-lease sites occupied by banks are around 6 percent, while the rates for fast-food and automotive sites are around 7 percent and 7.3 percent, respectively, according to Miller.
The financial stability of the national chains that frequently occupy single-tenant, net-lease sites is one of the reasons for the sector’s appeal, as is the fact that the leases often include corporate guarantees, Bull said.
For many investors, in fact, such a guarantee is a requirement. “As a rule, I exclude everything that’s not corporate guaranteed, out of the box,” said Roman DeVille, CEO of Tempo Properties and of Capital South Financial Services.
Properties with non-credit-grade tenants or shorter-term leases aren’t as highly sought after, but nevertheless there is a segment of buyers who seek the higher returns that accompany these slightly riskier investments, the panel noted.
Even a single-tenant, net-lease property with a credit-grade tenant can have some unexpected landlord costs, according to Karen Hutton, CEO of The Hutton Co. development firm, who urged investors to carefully read the lease terms. “The devil’s in the details,” Hutton said.
The entire episode on the single-tenant net-lease market is available for download at www.CREshow.com. The next “Commercial Real Estate Show” will be available March 7 and will examine investing in distressed and value-add properties.
About the “Commercial Real Estate Show”:
The “Commercial Real Estate Show” is a talk radio show about business and commercial real estate-related topics in the U.S. New shows are broadcast weekly on 10 radio stations across the nation on the Wall Street Business Network, and also are available on iTunes and the show website, www.CREshow.com.
The show host is 30-year commercial real estate veteran Michael Bull, CCIM. Bull is the founder of Bull Realty, a U.S. commercial real estate brokerage firm headquartered in Atlanta.