Back in May we did a story dealing with the possibility of net lease cap ratecompression based off a Wall Street Journal article.

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Specifically, the article said: “in recent months, cap rates have been fallingbecause property prices nationally are rebounding. More investorsare going after fewer high-quality properties, driving pricesup.”

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Now that we are a few months advanced, how does this statementstand up?

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Certain areas and products have certainly seen cap ratecompression. Highly trafficked urban areas such as the WashingtonDC metro area and popular tenants like Walgreens and CVS areexemplars of this. However, on average the trend has been moretowards stabilization.

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Our own cap rate report,released in late June, has net lease retail cap rates at 8.10%; aslight increase from 8.00% in the fall of 2009. Real CapitalAnalytics confirmed our current estimates in their 1Q Single TenantRetail report by also citing a current average of 8.10%. Theydiffered slightly in their 4Q 2009 averages, highlighting a rate of7.7%. Nonetheless, a similar trend is projected. Cap rates haveincreased slightly but at a much reduced pace from what was seenearlier.

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Though we are not experiencing overall cap rate compression theareas and products which are succeeding represent great investmentopportunities. Furthermore, cap rate stabilization points to asecure market that is more attractive to investors.

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Jonathan Hipp

Jonathan Hipp began his career in real estate over 25 years ago. In his early years as a broker, he ventured into the net lease industry and quickly began leading the US net lease market, closing over $3 billion in transactions. In 2005, Jon founded Calkain Companies, a company focused solely on net lease investment services. As President and CEO, he has been instrumental in building the firm into one of the leading Net Lease real estate companies, transacting over $12 billion of net lease deal volume over the past 13 years. He has expanded Calkain’s services to include brokerage, advisory, asset management, capital markets, and industry research. He has become a well-known resource, panelist, and speaker at various Net Lease and Industry conferences and is a regular contributor to GlobeSt.com on real estate trends. In June 2015, Jon’s passion for the real estate business was again recognized as he was nominated for the Top Real Estate Player in the DC area by SmartCEO magazine.