GlobeSt.com: So why the dip in your volume?

Hawkes: We felt the cap levels were too low. We tend to be longer-term investors, and for a 15- to 20-year investment play, 6% simply isn't going to do it. But it should be noted that the tide seems to be turning, and we recently committed to a sizeable transaction. But we're not ready to talk about it yet.

GlobeSt.com: In the midst of the dip, would you have changed your hold strategy?

Hawkes: We found that we could be more flexible and go to 10-year lease, but again that didn't entice us to do deals that were uneconomical.

GlobeSt.com: You've expressed your optimism about the market's potential. Who's occupying the space?

Hawkes: The vast volume being publicly reported happens to be with 1031 buyers and what I call stock-market refugees, people who are perhaps more comfortable with bricks and mortar than with stocks. On a risk-adjusted basis, our market is very enticing because you're essentially getting a corporate credit vis-a-vis the lease contract coupled with real estate, so you have two forms of security. We also have traditional commercial real estate buyers who are used to multi-tenanted product and are finding the net-lease market attractive as cap rates on their traditional plays come down. Finally you have REITs, which represent an enormous amount of money from retail investors. Those categories represent a significant amount of capital in the market.

GlobeSt.com: But at the net lease conference other panelists voiced their concern about the market's sustainability. What say you?

Hawkes: I do agree that the institutional buyers--like ourselves--have been less active, for the reason I stated. We wouldn't buy at recent cap levels. There's been a fundamental disconnect with the underlying real estate and market economics. We couldn't substantiate the numbers, not to ourselves and not to our clients, so we've been net sellers. But we haven't stopped buying properties and we've been successful finding transactions that have met our investment parameters.

GlobeSt.com: And when the stock market normalizes do you expect a lot of the folks you called refugees to go away?

Hawkes: No. Some of it may recede with the tide but a lot more people are becoming familiar and comfortable with what was a small niche market. Some of those players are here to stay.

GlobeSt.com: As fundamentals improve, is there any likelihood that corporations would opt more for keeping their assets on their balance sheets?

Hawkes: As the demand for capital grows, the normal state of affairs will return and corporations will continue to evaluate the various universes of capital that are available. They're either going to use their equity, which is costly, or their debt, which will impact their balance sheets, or they'll employ a sale/leaseback or net-lease structure--in other words, they'll use other people's money. It comes down to determining which source of capital makes the most sense on an after-tax, cost-of-capital basis. In fact, many corporations will choose a mixture of all three.

GlobeSt.com: Has Enron-itis disappeared?

Hawkes: It has subsided. Corporate America seems to have returned to business as usual, only with greater participation of outside accountants earlier in the process to ensure the structure meets guidelines.

GlobeSt.com: What do you see as the coming dynamic between interest and cap rates?

Hawkes: Short-term traders who buy fixed cap-rate deals with floating-rate debt--the flippers who plan to sell in three to six months--have to be wary of increasing rates because their buyers will be using debt, and if the rates move too fast they can get squeezed. In terms of long-term, fixed-rate buyers, our risk will be between the day we commit and the day we close. In more general terms, as rates go up there will be a lag in cap rates, but it won't be a long lag. It's all a question of how fast cap rates rise, which is directly related to how fast and how high interest rates go up.

GlobeSt.com: And your optimism remains?

Hawkes: Yes. As I've indicated, we're seeing a marked increase in product flow. As rates rise, capital will tighten and the reliance on what's been almost-free, revolving bank debt will begin to go away. Those that take advantage of today's rates will be well-positioned. The situation will bode particularly well for institutional players and corporations who need to seek an outlet for their capital needs.