Net Lease is the New Black
Compressed supply and cap rates among net lease properties in Q1 show the asset class (a favorite of conservative investors looking for passive income) is now appealing to a broader base, including risk-averse lenders. Chicago MSA net lease supply was down 14% from Q4 '12, with median cap rates at 7.41% for retail, 8.2% for industrial, and 8.25% for office, according to research from The Boulder Group. Boulder president Randy Blankstein tells us Chicago numbers are slightly above national cap rates because of a serious lack of new construction; most properties on the market are older with shorter-term leases.
Retail trades at a premium to office and industrial because it typically has longer lease terms and better credit, Randy says. People are still hesitant to invest in the recovering suburban office market, and industrial long-term leases are rare. Why net lease is so hot right now: no near-term leasing risk, stable cash flow, and a higher yield (allplusesfor lenders and all good reasons to get married). Randy sees no dramatic market changes in the near future, but for now, popular tenants like Walgreens, CVS, McDonald's, and banks are keeping Boulder busy (like a 5,000 SF BofA branch in Warrenville that sold for $3.4M this week).