TULSA, OK—“Many investors are leaving or further diversifying their stock and bond portfolios, and putting their money to work in single-tenant, net lease investments.” So says Stan Johnson’s Brad Pepin, senior director in the Tulsa, OK office. GlobeSt.com recently caught up with Pepin to chat about net lease development and the state of the financial markets impacting investor interest in net lease retail properties in preparation for the upcoming ICSC ReCon event in Las Vegas.
GlobeSt.com: How would you describe development activity in net lease retail properties? How has it changed over the past few years?
Brad Pepin: Net lease retail development continues to be strong throughout the country, especially in high-growth areas. In addition, retailers such as Dollar General and Family Dollar have expanded their footprint exponentially as compared to pre-recession norms. Net lease investors, both institutional and individual, continue to seek product at an aggressive level and causing there to be more demand than supply. This, combined with low interest rates, has kept cap rates at historical lows.
GlobeSt.com: How is the current state of the financial markets impacting investor interest in net lease retail properties?
Pepin: Many investors are leaving or further diversifying their stock and bond portfolios, and putting their money to work in single-tenant, net lease investments. The financial markets continue to be volatile, causing passive investors to seek stability and consistency of their returns and earnings through commercial real estate. In addition, the “bricks and mortar” characteristics of commercial real estate adds to the security and comfort for investors who desire to sleep better at night. The NNN lease components of commercial real estate provide that passivity and consistency of return on investment.
GlobeSt.com: What obstacles are developers encountering with net lease retail properties?
Pepin: Retailer tenants are very keen on where cap rates are trading today for their particular build-to-suit project. Request-for-Proposals are becoming more competitive and rent constants continue to have downward pressure. In addition to this, some of our active developer clients are finding it difficult to provide the equity needed for every development they have in their pipeline. We have assisted our developer clients with various equity sources and created joint-venture partnerships to fill that capital void. It becomes a win-win for everyone involved, and allows the developers to take on more build-to-suit projects.