Cap rates for net lease banks and Bank of America specifically are at their lowest point in eight years. So far in 2014, net lease banks have averaged a cap rate of 5.93% while Bank of America averaged an even lower 5.06%. For comparison, in 2007 at the height of the previous real estate boom, banks averages 6.08% and Bank of America 5.54%. A 15 and 48 basis point difference respectively.

There are several reasons for the current market's historic cap rate lows. The past recession caused a halt in nearly all new construction. This resulted in a stagnant and dwindling pool of assets. Interest rates were also dropped to historic lows - making financing very achievable. Furthermore, a "flight to quality" ensured investors were looking for properties with strong fundamentals such as long lease term, prime location, and investment grade tenant. All these factors have driven a compression in cap rates for net lease properties and especially banks and Bank of America (Rated A- by S&P).

However, these trends are beginning to abate. Interest rates remain low today but have incrementally increased from their sub 2% lows in 2012-2013. This upward trend is expected to continue in the future. Lack of construction has led to a dearth of properties but the wheels of development are slowly getting underway again. As a result, cap rate compression is likely to soon level off.

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Historic Net Lease Bank Cap Rates

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