How Rising Dollar Impacts Net Lease Market

MIAMI—There's been a lot of talk about how the rising US dollar has had a negative impact on condo sales in Miami. But what about the net lease market?

GlobeSt.com caught up with Jason Fox, head of global investments at W. P. Carey, a global net lease REIT, to ask this and other net lease questions. W. P. Carey acts as a source of liquidity for institutional owners and other types of owners of existing net leased properties located both domestically and abroad and does major deals around the world.

GlobeSt.com: How has the net lease market changed year-over-year?

Fox: Companies have continued to cash out of their owned real estate in order to invest in their core competencies and their operating businesses. If anything the market has become more competitive over the past year as the demand for solid income generating investments in a low interest rate environment has continued to grow.   

GlobeSt.com: In terms of supply and demand, which way is the inventory leaning right now?

Fox: Because of the continuing demand for yield in a low interest rate environment demand for net lease properties has remains strong. However, the sense of the market is that as the economy improves more corporations will need to expand their physical facilities generating more supply.  

GlobeSt.com: Are investors looking to secondary and tertiary markets for good acquisitions?

Fox: In terms of secondary and tertiary markets the same criteria apply as in primary markets. For a credit tenant with a long lease where the majority of the projected return comes from rental payments versus residual value, secondary and tertiary markets can provide attractive investments opportunities.   

GlobeSt.com: Are investors grabbing class B and class C net leased assets?

Fox: Again it is a question of evaluating risk-adjusted returns where the lease term, credit worthiness of the tenant and criticality of the asset all play a role in the investment decision whether it be Class A, B or C assets.   

GlobeSt.com: Where do foreign investors fit into the net leased market?

Fox: Although the increasing value of the dollar versus foreign currencies has made investing more expensive, we still see capital from foreign investors actively pursuing net lease assets, either independently or through US partners and advisors.   

GlobeSt.com: Are you seeing any bidding wars in the net lease sector? If so, can you offer any examples?

Fox: Given the number of investors in the market and the level of competition there are multiple bidders on most transactions. 

GlobeSt.com: How is the rising strength of the dollar impacting the net lease market, if at all?

Fox: Because foreign investors are seeking the safety of the US economy, there seems to be little impact on their interest in net lease investing. For W. P. Carey, because of our global capabilities and access to markets outside the US we believe we will continue to see attractive net lease investment opportunities overseas, particularly as investors with shorter investment time frames look to seek liquidity through the sale of quality long-term net leased assets and also as developers look for build-to-suit financing for long-term net leased corporate assets that they are constructing.