Quick Observations from RealShare Net Lease

Here are some quick reactions from this year’s RealShare Net Lease Conference in New York covering three main topics – debt, the economy and the future net lease outlook.

Debt

• While the NNN space is as active as it has ever been, there is actually an upper limiter on deal size.  Deals over $200M seem to be fairly challenging.
• CMBS is back, but still faces some challenges.  Most originations are in the $1.5B area and S&P has indicated that it would like to see individual loans remain below 5% of the total origination.
• 50% of all CTL financing originated in the past few years has been for drug store locations.

• Financing terms easing up for investment credit NNN deals.  Terms not as flexible for non credit deals.

Economy

• In order for real economic growth to take place, we need job growth.  The jobs we will grow will not be the jobs we lost, but more specialized, high tech jobs.
• In terms of job recovery, we are still at a worse position than at the depths of the 1950’s recession. 
• Uncertainty around the political agenda going forward can cause a disruption in the markets towards the end of the year. 

Net Lease Outlook

• Net Lease markets remain strong for investors.

• Cap rate compression is very real, and cost of capital will continue to bifurcate the private versus institutional investors ability to acquire class A assets.
• Demand for non credit and secondary markets will increase, compressing the spread between class A and class B assets

• More institutional capital moving into NNN space.
• Built-To-Suit market is seeing uptick, but sale/leasebacks face competition from the bond markets.
• Institutional buyers looking more at industrial, office and senior housing net lease alternatives.