As part of our continuing coverage of the retail sector inour leadup to ICSC RECon 2014 in Las Vegas, we talked to GuyPonticiello, Managing Director of JLL's Net Lease group, for thecompany's take on the sector.

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GlobeSt.com: Net Lease has garnered a lot moremainstream investor acceptance in the last few years. Where do yousee the sector headed as a result?

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Guy Ponticiello: In 2013, net leasetransaction volumes reached a record setting $42 billion. In 2014,we anticipate net lease transaction volumes will far exceed prioryear's estimates due to greatly improving financing options and anextensive amount of capital pursuing net lease investments. Thecomfort level and excitement from investors regarding this segmentis creating a strong environment for raising capital by many of thenet lease sponsors, particularly through the broker dealer networkswhich was predominately utilized by the non-traded REITS in raisingin excess of $8 billion in equity in 2013. As the product is viewedin a more institutional light and covered more extensively byindustry analysts, transaction volumes will continue to grow,pursued by players across the spectrum including REITs, pensionfunds and institutional investors.

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Look no further for evidence of the growth in the net leasesector than the number of new IPOs and mergers and acquisitions inthe REIT world in 2013, punctuated by the acquisition of ColeCapital by American Realty Capital resulting in a $21-billion REIT.The net lease REIT sector is quickly approaching $100 billion andis no longer considered “other” as an investment class. Ourexpectation is that 2014 will likely witness several additionalIPOs, particularly for a number of the smaller non-traded REITs andprivate net lease funds looking to create a liquidity event fortheir shareholders and seed investors.

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GlobeSt.com: Are you seeing any external factorscontributing to the increased funding in thesector?

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Guy Ponticiello: One factorcontributing to the success of raising and securing capital is theimproving debt market. CMBS is back and readily available,providing quotes that are typically 10-year interest-only, offertight spreads and 70% LTV. While a strong debt market bodes wellfor the entire commercial real estate industry, net lease willespecially benefit; allowing investors the ability to generatefavorable equity returns even at low 6 percent cap valuations

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In addition to an improving debt market is the overall improvingeconomy, which provides investors and lenders with confidence and awillingness to spend more dollars. This leads to more developmentand as retailers look to build, net lease activity should tickupward.

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GlobeSt.com: What's the upshot of all thisactivity?

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Guy Ponticiello: The growth of thesector as a whole has led to fierce competition in primary markets.In response, activity is picking up in secondary markets whereinvestors can take advantage of higher yields and this willcontinue into 2014 and beyond. This activity pushes down cap ratesand while there is still a fairly large spread between markets,it's beginning to compress. However, we don't expect to see toomuch upward pressure this year.

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We predict yield-oriented investors will continue to be drawninto the space as an alternative to traditional fixed incomeproducts while interest rates remain low. Expect yet another banneryear for net lease investments.

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To see presentation from JLL and Guy Ponticiello on thesector, click the image at the top of the story.

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Geoffery Metz

Geoffery Metz is the content manager for ALM's GlobeSt.com, Credit Union Times and Treasury & Risk. Before joining ALM, he spent several years overseeing the newsroom at the financial wire service Business Wire, with special focus on multimedia presentation for the web.