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Net Lease Investors Look Into the Future

NEW YORK CITY — Rayna Katz
It’s been said that those who have a crystal ball wind up eating glass. While no one in the net lease sector wants to be in that situation, players have no choice but to try to predict and prepare for the future.
With that in mind, a cross section of executives in the space opined on what they’re anticipating on everything from interest rates and what industries are interested in signing net leases to their biggest professional fears during Wednesday’s RealShare Net Lease conference here.
“Interest rates will go up within the next 12 months but I don’t think there will be a major jump,” says Thomas Roberts, EVP, American Realty Capital Partners. “They will rise very slowly.”
CBRE SVP Will Pike was even more optimistic, while Corporate Partners Capital Group founding principal and managing director Howard Sands is bracing for every possibility.
“For 2014, we should be fine,” says Pike. “My approach is just to be prepared for what might happen,” adds Sands.
As such, net lease investors are playing the field. Said Stephen Horn, EVP and chief acquisition officer, National Retail Properties, “Opportunities have come on the restaurant side.” The firm also is interested in retail, “and that includes auto dealerships and movie theaters.”
Noted Biff McGuire, CEO, N3 Real Estate, “We’ve seen a lot of urgent care practices and retail facing centers try to take advantage of the paradigm shift in health insurance.”
“We’re seeing for profit education institutions, urgent care and dental clinics, from a free standing net standpoint,” asserted Marcus & Millichap’s Glen Kunofsky, EVP, investments. “There’s a market for everything.
“With the private education sector,” he continued, “there aren’t many credit tenants out there but there’s private capital that understands real estate, and they need to clean out their balance sheets. The market for eight to 10 market capitalization rates is where I like to play and that’s out there.”
At Gramercy Property Trust, industrial appears to be the focus. “We’ve found success in specialty industrial, with high barriers to entry,” said Benjamin Harris, president. “We’ll buy bulk warehouse and manufacturing, we just want to understand the risk that we’re taking and be paid appropriately.”
Speakers were mixed on whether they like credit, below investment grade or even unrated tenants. “We’ll do good credit to bad, it all comes down to the return we’re getting,” said Harris. Added Roberts, “We very much want to see and underwrite lesser credit for higher yield.”
But what keeps net lease operators up at night? “Another general credit crisis,” said Benjamin Butcher, CEO, president and chairman, STAG Industrial. “A recession isn’t necessarily bad for our business because our tenants don’t tend to move in down times.
“Anything I hear about China worries me,” he added. “The country is building office space when no one wants it and the industry there last year threw away whatever concrete it didn’t use. So there real issues there.”
“Interest rates don’t keep me up at night and the recession wouldn’t bother me,” noted Horn. “What keeps me up is the next opportunity, because being public, I have to grow.”
Said Harris, “Interest rates are definitely a risk but the big risk is capital market availability. Our goal is to grow quickly and it would be a big challenge if we didn’t have the access to capital to do that.”
Join us at Convene in NYC where we will be covering the entire national net lease, sales leaseback and 1031 exchange market across the property type. RealShare Net Lease attracts over 400 commercial real estate professionals across the sector for networking and panelist discussions – including Net Lease Insider columnist and Calkain President and CEO Jonathan Hipp – at RealShare NET LEASE on April 1.
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