WASHINGTON, DC-Calkain Cos.' mid-year report, a joint effort of Calkain Cos. and Chandon Economics, notes that bank branches are capturing the lowest cap rates of any class of triple net properties, and for good reason. They offer investors stable cash flow and high renewal rates.
However, trends in the banking industry are beginning to reshape, albeit subtly, the calculus investors must make when they value these properties. These trends include industry consolidation, a decline in the number of bank branches, and the increasing relevance of digital substitutes for tellers and ATMs, Calkain reports.
In short, "not all banks are created equal in size and stature," it notes. For example, more than half of all institutions have fewer than five branches and only a small share has twenty or more. Also, while the average number of branches has been increasing this is more of a reflection of industry consolidation. All told, in aggregate, there are nearly 3,000 fewer branches in 2013 than in 2007, according to the report.
The bottom line, Calkain says, is that investors are more interested in banks that are increasing their footprints as opposed to those that are contracting. Across banks with the most actively traded branches, cap rates are more than 100 basis points lower for institutions that are expanding their footprints, it said.
There are other factors that weigh in as well, of course, including location. Still, Calkain urges investors to be careful in evaluating which branches warrant low cap rates and which do not.
For banks, though, "low" may be a relative figure. As an earlier report by The Boulder Group found, cap rates for single-tenant bank ground leases have sunk to their lowest level since 2004.
The bank cap rates compressed by 85 basis points over the past year to 5%, it reported, while cap rates for other retail remained above 7%. Another differentiator: few net-lease assets have investment-grade tenants with built-in rental escalations. These types of leases are fairly common among banks, though, which also have very low default rates, making the properties quite attractive to investors.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
