By Jonathan Hipp February 3, 2014
Note: This is an excerpt from the newest Calkain & Chandon Net Lease Economic Report, due to be released next week. If you’d like to receive a free copy, feel free to Sign Up.
Investors’ reduced tolerance for risk-taking was a primary driver of demand for well-tenanted net lease assets during the throws of the downturn. As the economic and real estate outlook has improved, however, demand for net lease properties has remained resilient. During the third and fourth quarters, property prices held onto their recent gains. Investment sales picked up in the last few weeks of the year. Higher risk-free interest rates were absorbed into spreads while cap rates increased on the margins.
The growing relevance of the net lease sector as a target for institutional capital is contributing to stickiness in prices. Time-on-market has lengthened for some properties as a result, but it is too early to infer a sustained trend. Overall, the sector’s current investment profile reflects a long-term shift where net lease properties are becoming a more integrated component of the commercial property portfolio.
The commercial property investment climate has improved markedly over the course of the last year. During the third and fourth quarters of 2013, buyers and sellers engaged across a wider range of properties and metro areas than at any time since the financial crisis began. Secondary markets, small- and mid-cap properties, value-add investments, and development opportunities all featured more prominently.
In support of property sales, balance sheet and conduit lenders have loosened underwriting criteria, assented to greater risk-taking, and ramped up lending volume in kind. That trend is expected to continue. In the most recent RELA-Chandan Survey of Commercial Real Estate Lender Sentiment, banks and other capital providers project overwhelmingly that lending volumes will rise in 2014.
Jonathan W. Hipp is the founding President and CEO of Calkain Companies and is a member of Calkain’s Executive Committee. Calkain is a national, commercial real estate firm which provides brokerage and consulting services for both private and institutional clientele that specializes in assisting Buyers and Sellers with the acquisition and disposition of single and multi-tenant net lease investment properties. The company is comprised of five divisions specializing in brokerage, advisory, asset management, capital markets and research.
Jonathan is one of the leading experts in Net Lease Investments. With over 25 years of experience in Commercial Real Estate, he manages the overall strategies and growth of Calkain and has successfully completed nearly $3 billion in investments throughout his career. Through his leadership and vision, Calkain has grown to $9 billion in transactions. Mr. Hipp also serves as a member on the President’s Council of the prestigious invitation-only Real Estate Roundtable. His unique industry expertise is manifested in a well reviewed book he coauthored, The Little Book of Triple Net Lease Investing, which serves as a handbook for investors.