Net Leases Growing From "Niche" to Mainstream
2014 could be a big year for the net lease market's bold push into the mainstream and out of its traditional "niche" status. In 2013 American Reality Capital purchased CapLease for $2.2 billion and will merge with Cole Real Estate in a transaction worth $11.2 billion - creating the largest Net Lease REIT with an enterprise value of $21.5 billion and the largest REIT merger in two years. In-fact, publicly traded net lease companies now combine for $40 billion in market capitalization - a larger presence than the industrial real estate REIT sector and on par with lodging and self-storage.
Over the past three years, net lease REIT's have doubled their share of the FTSE NAREIT Equity REIT index to 6% and have witnessed growth of 9%-11% in the past two years. It's clear the net lease sector is becoming a much more attractive target for institutional capital and this will only increase in 2014. Long term net leases will most likely become a heavily integrated component of the commercial property portfolio.
As we move forward the future seems to shine for the net lease market. Construction is breaking ground in noticeable amounts of new developments and investors continue to have a strong appetite. Financing will remain relatively easy to obtain in 2014 despite the sliding increase in interest rates. All signs point to net leases maturing into a core asset class.