CHICAGO-National cap rates increased in the second quarter, adynamic not seen since a year ago, according to a second quarternet lease market report by the locally-based Boulder Group.However, the company says any movement is mostly just in theprimary markets, with secondary and lesser markets still strugglingto see activity.


Randy Blankstein, president of the company, said the increase ofinvestor demand returning to the single-tenant market can beattributed to continued improvement in the financing market asbanks, credit unions and life companies have become more activeafter a dismal 2009. “The story is pretty simple, with financingcoming back, cap rates are coming down,” he tells


However, he says the majority of activity in the market has beenreduced to two segments. One market segment of investors is focusedon sub-8% cap rate properties under $10 million that are leased toinvestment-grade rated tenants in core metropolitan areas, withlong-term leases. The other segment is comprised of yield buyers,at 9% cap rates and higher, who are seeking opportunistic returnstrategies by targeting second-tier markets, non-investment gradetenants or shorter-term leases. “It’s a bifurcated market at thispoint,” Blankstein says.


Even though supply will likely dwindle because of barely any newconstruction, investors are still waiting for a bigger push untilit’s known where interest rates will go, he says. Tenants are alsostill in limbo, though there is more movement than last year.“People are waiting for more signs of a recovery before they startexpanding again,” Blankstein says.

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