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Tulsa, OK—Although the market is still very much in low gear, several net lease market specialists are reporting a recent increase in sales activity. Locally based brokerage Stan Johnson Co., for one, reports that it closed just three deals in January and February but that that number shot up to 14 for March and April.

Steady improvement in the last three to four months, and particularly the last three to four weeks, has been a welcome development, says Stan Johnson Co. executive managing director Harold Briggs. “We are seeing an uptick and that’s encouraging.”

Northbrook, IL-based Boulder Net Lease Funds LLC reports an increase in sales activity in its first quarter Net Lease Market Report, as well. “Boulder has seen a notable increase in the amount of activity in the net lease marketplace,” the report states. “Transaction volume increased dramatically during the first quarter as compared to the fourth quarter, and Boulder anticipates this trend to continue as the strong motivation of distressed sellers continues.” That said, the Boulder report notes that the number of net lease properties available for purchase in the market continues to increase as well.

Rising cap rates and a narrowing bid-ask gap are the chief reasons why sales activity is starting to increase, market experts say. “What you’re finding is buyers are coming back into the market, and they don’t have a lot of competition, so they can cherry pick,” Briggs says.

So what properties are moving in this market? They are primarily small deals under $3 million, often with buyers who can pay all-cash, ground leases with credit tenants, properties with assumable financing in place, and zero-cash flow deals, Briggs says.

Among the recent deals brokered by Stan Johnson Co.: a newly constructed 12,900-square-foot CVS store in Dallas purchased by a 1031 exchange investor for an undisclosed sum, and a suburban Houston ground lease with an 8,000-square-foot restaurant leased to Cheddar’s Casual Café, purchased by a New York-based individual investor for $1.61 million.

Irvine, CA-based brokerage Faris Lee Investments recently closed four ground lease sales, too, all at the Paradise Valley Mall in Phoenix. Combined, the single-tenant retail pad sites sold for almost $4.6 million, with all four buyers paying all cash. One, occupied by Arby’s/Wendy’s, was purchased by a 1031 exchange investor who paid $1.08 million. Another, housing a Jared Galleria of Jewelry store, sold for $1.5 million.

A recent pickup in activity surely offers a glimmer of hope for an improving sales transaction market. But the market’s biggest hurdle remains the lack of availability and attractiveness of debt financing, net lease experts say, and the lending environment will play a crucial role in whether the recent increase in sales continues to build momentum.

“While sellers are beginning to adjust pricing to market levels, return hurdles for investors continue to outpace pricing re-adjustments,” according to the Boulder Q1 report. “The transaction volume of the first quarter, while a positive sign from an activity standpoint, is not sustainable unless affordable debt is reintroduced to the marketplace.”

“Until we see liquidity come back in a meaningful way,” Briggs adds, “I think it will continue to be a difficult market.”

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