chi-TacobellCHICAGO—Caprates in much of the single tenant net lease sector hit historiclows during the economic recovery, but recently those declines havemoderated. The net lease quick service restaurant sector, however,saw its median cap rates sink to 5.7% in the second quarter of2016, a compression of 10 bps from the prior year, according to anew report from theBoulderGroup, a Northbrook,IL-based net lease firm.Boulder found big differences between QSRproperties leased to franchisees and corporate-leased properties.The cap rate for the former declined by 10 bps to 5.8% while caprates for the latter experienced a 20 bps decline to 5.45%. Whilecap rates decreased, the supply of QSR properties increased byabout 26% year over year.McDonald'srestaurants, especially the corporate properties,have been in some ways the sector's gold standard. Last year, forexample, the cap rates for these restaurants hit just 3.95%. Thisyear, however, the rates actually increased to 4.1%, a bump of 15bps. But the median rate forChick-Fil-Afell 25 bps in the past year, and now stands at4.0%.“Investors are attractedto Chick-Fil-A as their store sales are well ahead of any of itspeers,”RandyBlankstein, president ofBoulder, tells GlobeSt.com. “Chick-Fil-A, according toQSRMagazine, averagedapproximately $3.1 million in sales per restaurant in 2014. This ismore than $500,000 more thanPanera Breadand McDonald's average store sales in 2014 andmore than triple the averageKFClocation.”The QSR sector differs from other net leaseretail sub-sectors as almost three-quarters of the properties areleased to franchisees rather than corporate entities, he adds. Andcorporately guaranteed QSR leases now have a 35 bps premium overfranchises, due to the perceived lower risks. 1031 and privateinvestors continue to dominate the acquisitions of net lease assetspriced below $10 million. In the second quarter of 2016, the medianasking price for single tenant QSR properties was $1.83million.“The single tenantnet lease QSR sector will remain active as supply remains abundantfor assets with long term leases,” according to the report. “Theattractive sale leaseback environment for QSR operators willcontinue to add supply to the market. Lower price points, rentalescalations and typical NNN lease structures of this asset typecontinue to attract private and 1031 exchange investors.”chi-TacobellCHICAGO—Caprates in much of the single tenant net lease sector hit historiclows during the economic recovery, but recently those declines havemoderated. The net lease quick service restaurant sector, however,saw its median cap rates sink to 5.7% in the second quarter of2016, a compression of 10 bps from the prior year, according to anew report from theBoulderGroup, a Northbrook,IL-based net lease firm.Boulder found big differences between QSRproperties leased to franchisees and corporate-leased properties.The cap rate for the former declined by 10 bps to 5.8% while caprates for the latter experienced a 20 bps decline to 5.45%. Whilecap rates decreased, the supply of QSR properties increased byabout 26% year over year.McDonald'srestaurants, especially the corporate properties,have been in some ways the sector's gold standard. Last year, forexample, the cap rates for these restaurants hit just 3.95%. Thisyear, however, the rates actually increased to 4.1%, a bump of 15bps. But the median rate forChick-Fil-Afell 25 bps in the past year, and now stands at4.0%.“Investors are attractedto Chick-Fil-A as their store sales are well ahead of any of itspeers,”RandyBlankstein, president ofBoulder, tells GlobeSt.com. “Chick-Fil-A, according toQSRMagazine, averagedapproximately $3.1 million in sales per restaurant in 2014. This ismore than $500,000 more thanPanera Breadand McDonald's average store sales in 2014 andmore than triple the averageKFClocation.”The QSR sector differs from other net leaseretail sub-sectors as almost three-quarters of the properties areleased to franchisees rather than corporate entities, he adds. Andcorporately guaranteed QSR leases now have a 35 bps premium overfranchises, due to the perceived lower risks. 1031 and privateinvestors continue to dominate the acquisitions of net lease assetspriced below $10 million. In the second quarter of 2016, the medianasking price for single tenant QSR properties was $1.83million.“The single tenantnet lease QSR sector will remain active as supply remains abundantfor assets with long term leases,” according to the report. “Theattractive sale leaseback environment for QSR operators willcontinue to add supply to the market. Lower price points, rentalescalations and typical NNN lease structures of this asset typecontinue to attract private and 1031 exchange investors.”

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Brian J. Rogal

Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.

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