Choose your exact check-in and check-out dates for our monthly apartments for rent, while avoiding being locked into an annual contract. But buyer demand is strong across virtually all industrial subtypes. Assets America guided us every step of the way in finding and leasing our large industrial building with attached offices. As can be expected, sectors classified as essential business with more capabilities to adapt to a changing marketplace have been less affected than others. patrick.luther@srsre.com, 954.302.7365 0 Data is distributed amongst 13 regions encompassing all 50 states as well as Puerto Rico, Guam and the U.S. Virgin Islands. The number of properties on the market decreased 3.94%. At First National Realty Partners, we have a significant amount of experience with net leased assets and a firm understanding of what drives cap rates for them. Assets America was responsible for arranging financing for two of my multi million dollar commercial projects. We later used Assets America for a unique equipment financing deal where once again Ronny and team exceeded our expectations and our timeline. In the retail sector, they inched up a few basis points to an average cap rate of 5.88% and in the industrial sector they averaged 6.77%. Assets America also handled the commercial loan for us. They are reputable, knowledgeable, and ethical with proven results. The lender controls insurance proceeds stemming from casualty and condemnation. In comparison to the economic depths experience in the spring 2020, the auto industry rebounded in new-vehicle sales. Upon foreclosure of the property, the lender receives the lessees leasehold interest in the property. The University of Michigans consumer sentiment for the US recorded at 83.0 in March 2021. The 10-year Treasury rate is expected to rise to at least 2% by the end of this year. Net Leased C-Store and Gas Station Portfolio Sold. RealtyRates.com is headquartered in Bradenton, Florida - Offices in New York, Boston, Chicago, Atlanta, Dallas, Denver, San Francisco, Los Angeles,and Honolulu. With growing inflation and expected hikes in US Treasuries in 2022, NNN retail across virtually all asset types saw a compression in cap rates. It was great to have such knowledgeable and super-experienced, licensed pros in our corner, pros upon which we could fully rely. The impact of pandemic has forever changed most restaurant business functions, especially the casual dining sector. Cap rates continue to compressed, falling into the 4% range to 4.87% in Q4. Highly recommend them to anyone looking for financing. General retail sectors include fitness, hardware, furniture, home goods, cellular stores and other retail types which do not fall under one of the other focused sectors. This gives the GL a maximum term of 30 years. It is expected there will be an 8% rise in 2021 sales for the auto industry. *Market totals represent the studys sample sizes for select industries and are not indicative of all retail sales that occurred for all of 2021. The cap rate formula is: Cap Rate = Net Operating Income / Market Value. The firm provides a full range of brokerage, research, advisory, and financing services nationwide. endstream endobj startxref SRS National Net Lease has closed, year to date this year, 180 properties, up approximately 17% from this time in 2021, with over 230 properties under contract, also 14% higher than this time. Commercial real estate property valuations are driven by a number of factors, but two of the most important are the tenant lease type and the prevailing cap rate(s) in a given market. Single-tenant industrial cap rates have reported significant compression in recent years, falling 65 basis points in the last 24 months to end the year at an average of 5.6 percent. Founded in 1997, the firm has closed over $6 billion of net lease property transactions. The latest wave of Covid is also likely to prompt an economic slowdown as some restaurants and retails have had to shut locations or reduce hours as they cope with staff and inventory shortages. Lenders also require that neither lessors nor lessees can terminate ground leases due to a casualty without their permission. *Note: this report captures data only for transactions which have reported a sale price and capitalization rate. patrick.luther@srsre.com, 954.302.7365 Focusing on business development, industry and client-specific research, and the analysis of local and national market trends, Lanie Beck has been the Director of Research for Stan Johnson Co. since 2013. %PDF-1.7 % to a ground lease needs to be refinanced with only 20 years remaining on the ground lease, the expected valuation decline can make this exceptionally difficult. National Net Lease Group: Q2/2022 Retail Report, National Net Lease Group: Q4 2021 Retail Report, National Net Lease Group: Q4 2021 Medical/Office Building Report. For investors interested in gaining exposure to net leased rental properties, one potential way to do so is through partnering with a private equity firm. Casual dining companies that were able to adapt to a fast-casual dining model have been able to have the best success. Cap rates in Q1 compressed 3bps compared to Q4. Bank institutions that made strategic technology investments prior to COVID-19 have performed stronger. Usually, the GL lender wants first priority regarding subtenant defaults. By 2022, ALDI will bring its total number of US stores to nearly 2,500. www.aldi.us Average Cap Rate 4.18% 12 mo avg with 10+ yr lease term Average Property & Lease Credit Rating Average Cap Rate Trend 4.65% 2021 4.35% 2022 Rates reflect last 12 mos, short and long-term Recent Sales Comps A propertys capitalization rate cap rate for short is a performance metric that describes the ratio between its net operating income (NOI) and value. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); document.getElementById( "ak_js_2" ).setAttribute( "value", ( new Date() ).getTime() ); This field is for validation purposes and should be left unchanged. They are gross leases, modified gross leases, single net leases, double net leases and triple net leases. In this article, we are going to describe the relationship between property cap rates and a specific type of lease known as a net lease. In doing so, we will define key terms and identify the factors that are expected to drive cap rate trends and valuations for net leased properties in 2022 and beyond. However this might discourage lenders, who wouldnt be able to take possession in case of default. In Q4, we saw the first palpable effect from the extreme inflation the US reported in October. The also include absolute leases, percentage leases, and the subject of this article, ground leases. Revenue for C-Stores is expected to grow at an annual rate of 1.5% until 2026. Commercial real estate investment property leases can be grouped into two categories, gross and net. A low cap rate means higher value and a high cap rate means lower value. In a ground lease (GL), a tenant develops a piece of land during the lease period. This sector consists largely of credit-worthy brands like Panera Bread and Chipotle. Tenant pays base rent plus their share of property taxes, insurance, and maintenance. Even as the market emerges from the pandemic, and consumers may depend slightly less on e-commerce in the near term, the outlook still points to a long-term reliance on industrial product, and investors will continue to be drawn to opportunities in this sector. They obtained fantastic, low, fixed rate insurance money for us. Note: this report captures data only for transactions which have reported a sale price and capitalization rate. While these were slight increases, they remain at historically low levels driven by low interest rates and a significant amount of institutional capital chasing the stable yields that net lease properties can deliver. We were very pleased with Assets Americas expertise and prompt response to our inquiry. For example, net leased properties with short lease terms remaining or those with non-credit tenants may see larger swings in value than those with long term leases and credit tenants. As expected, the last few quarters have seen compressed cap rates, even falling below the 6.0 percent mark for back-to-back quarters in mid-2020. Moreover, Q4 saw the most NNN Medical or Medtail transactions of any other quarter in 2021. The Discount Dollar sector continues to be one of the most highly sought-after spaces as investors target growth opportunities given high volume of sale transactions being made in comparison to other retail sectors. Since the pandemic, we havent seen a quarter with more than 10 trades in this asset type. All Rights Reserved. The company is very capable, I would recommend Assets America to any company requiring commercial financing. In Q2 2021, properties leased to Chick-Fil-A and McDonald's had cap. Cap rates continue to compress in this sector with the average cap rate falling 5bps from 5.98% in Q3 to 5.93% in Q4. The inherited improvements allow the owner to sell the property for more money, if so desired. Once the lease expires, the lessor becomes responsible for paying the property taxes. As early 2021 closings were pushed ahead into the previous quarter, first quarter sales activity appears to have lost momentum with a 50 percent drop to $6.2 billion in sales. As restrictions continue to be lifted, activity in casual dining will start to resume to a new business model normalcy. The lease will specify whether they revert to the lessor or the lessee must remove them. This additional aid to funds is expected to boost economic growth and push up both inflation and interest rates. For individual investors who are interested in this asset class, partnering with a private equity firm is a good way to gain fractional ownership of institutional quality, net leased assets. Retail profit margins are expected to hit a high of 13% in 2021 as retailers are being challenged with an imbalance of demand and available inventory due supply chain issues. hbbd```b``a Dr\1 LjI#xXW2=@Oq>"&xHTz/? For this report, SRS reviewed Q1 2021 sales reported by Costar for the following sectors: Automotive, Bank, Big Box/Superstore, Casual Dining, C-Store/Gas, Dollar Stores, Educational (Childcare), Fast Casual, Grocery, General Retail, Medical STNL, Pharmacy, and QSR. Accordingly, as banks implement their modern footprints and mobile banking strategies, bank branch closings have become more common. Despite the lack of inventory, consumer demand has remained strong. So, Assets America handled both the sale and the loan for us and successfully closed our escrow within the time frame stated in the purchase agreement. That means that the lessee pays the property taxes during the lease term. Yields also ticked up as initial unemployment claims declined. In addition to the real estate lease, Assets America utilized their decades-long financial expertise to negotiate fantastic rates and terms on our large and very unique multimillion dollar equipment purchase/lease. The sector is largely dominated by Walgreens transactions. The single-tenant industrial sector is on pace to have its best year ever. Growing inventory, strong tenant credits and yield have all been primary drivers. Unsurprisingly, lenders want the insurance proceeds to go toward the loan, not property restoration. Great experience with Assets America. It does the rest. The industry has shown resilience by successful technology improvements that benefit both bank businesses and clients. Having them on our team meant that we could always receive truthful, timely and accurate answers to our questions. Lessors want the right to increase rents after specified periods so that it maintains market-level rents. Get instant access to all of our current and past commercial real estate deals. Ronny was incredibly adept and responsive top-notch professional who arranged impressive term sheets. Will Cap Rates Continue to Increase in 2022? Casual dining net lease is one of the most impacted retail sectors affected by COVID-19 compliances as businesses struggle to stay afloat. , the tenant pays base rent plus their share of property taxes and insurance. In the first quarter national asking cap rates in the single tenant bank ground lease sector decreased to 5.35%, according to the 2021 Net Lease Bank Ground Lease Report. Keep in mind that Assets America can help finance the construction or renovation of commercial property through our network of private investors and banks. We were thankful for how promptly and consistently they kept us informed and up to date on each step of our journey. Average cap rates have stayed historically consistent in the mid 6% range, and recorded at 6.65% in Q1. As the pressures from the Omicron variant persists, more consumers are purchasing goods rather than services. The GL specifies who owns the land and the improvements, i.e., property that the lessee constructs. As more people return to work and school, the need for C-Stores will increase. These are mortgages financing the lessees improvements to the ground lease property. While Q1 saw the number of big box trades increase to 6, from 2 in Q4, diminished activity is expected to continue through 2021 as owners are tasked with trying to resolve big box space use options. I highly recommend them to anyone needing commercial financing. In particular, the so-called risk free rate on the 10-year US Treasury has risen from 1.08% to ~1.70% in the first few weeks of 2022. , the fastest increase in nearly 20 years. By subscribing or purchasing surveys, you agree to our Terms of Use in their entirety including copyright provisions and the restrictions that accompany an ordinary annual subscription which represents a single site license, the use of which is limited to employees of a single office. Response to our inquiry ground lease property transactions was responsible for arranging for! 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