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Fast-Casual Restaurant Net-Lease CRE Outperforming Entire Net Lease Sector

Hooters on Wells Street

Fast-casual restaurants continue to be one of the most stable asset classes in the net lease commercial real estate sector, according to the Boulder Group's national net-lease casual dining report. Q1 2017 cap rates for fast-casual restaurants rose 25 basis points to 6%. Compared to the entire net lease market, casual dining properties are priced at a 19 bps premium.

The report also shows a wide cap rate differential between corporately guaranteed fast-casual properties and those leased to franchisees. The cap rate for corporately guaranteed leases are at 5.75% while franchisee cap rates are at 6.25%. A factor to that differential is a greater concentration of franchise-backed leases, which accounted for 49% of activity in Q1 versus 31% in Q1 2016.

Another reason investors are seeking out opportunities in net-lease fast-casual is because these restaurants are mostly resistant to disruption from e-commerce, and the returns associated from triple net leases for private investors. Private investors accounted for 70% of single-asset transaction activity in Q1.