The net lease market is currently highly advantageous for thepotential seller. Demand for net lease properties – especiallycredit tenants in prime locations - heavily outweighs supply. Caprates are dropping to levels not seen since 2007 and more investorsare getting comfortable with franchisee credit, shorter leaseterms, or private non-rated companies. In short, we could bewitnessing an historic sellers market that intelligent investorsshould take advantage of.
The entire net lease market has seen compressing cap rates. Acombination of multiple factors has led to this declining cap rateenvironment. First, low interest rates and a low yield investmentenvironment have heavily impacted cap rates. Because cheap debt isavailable and the risk free investment returns are so low,investors are able to pay premiums (lower cap rates) for net leaseassets and still achieve a spread that is appealing in today'smarket. Unlike the 2007 environment where interest rates hovered inthe mid to high 4.00% range – current interest rates are below2.00%. This environment has fostered an unbalanced demand for netlease properties.
Furthermore, there is limited net inventory available due to thefact that retail slowed their expansion and growth plans since2008. It’s no secret that construction fell to a near standstillduring the recession and even today has not recovered. This hascreated an ever dwindling pool of net lease investments on themarket.
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