Do Buyers Expect a Discount When Buying Net Lease Portfolios?

Toby Scrivner, senior director of Stan Johnson Co.

When would it make sense to sell a portfolio versus single-asset? We chatted with Toby Scrivner, senior director of Stan Johnson Co., on the subject and so much more in this exclusive Q&A on the subject of net lease.

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GlobeSt.com: How does pricing differ when comparing portfolios versus single-asset transactions for the same tenant?

Toby Scrivner: In our experience, we routinely find that buyers expect a discount when acquiring portfolios of net lease assets versus their single-asset counterparts. Until recently though, we hadn’t really analyzed the data to quantify this perception or theory of a “portfolio premium” – premium meaning that investors will pay a lower cap rate when the transaction size is larger. But many factors can influence an investment property’s cap rate – credit of the tenant, age of the property, remaining lease term – and since not all portfolios are created equal, we see them trade at different cap rates. Therefore, the only way to measure the theory of the “portfolio premium” was to compare sales data for the most commonly transacted tenant/property – and the data actually refutes the theory! Of the 13 often-traded retail tenants we recently evaluated, all but one reported a negative variance in single-asset versus portfolio prices, meaning buyers are regularly paying higher average cap rates when buying in bulk.