Cheap Money Fueling Net Lease Market- CoStar
The availability of inexpensive money from a variety of capital sources, both large and small, has fueled the more than $29 billion of confirmed single-tenant investment sales year to date.
Continued uncertainty with the stock market, together with lower yields available from more traditional investments and the relatively poor performance of multi-tenant retail, investors have been turning to the more predictable cash flow and returns associated with net-lease property. Lenders and funds have responded accordingly.
“The ‘buy’ side is being driven by the non-traded public REITs that raise funds from individual investors through broker-dealer networks,” said Scott E. Tracy, founding principal Corporate Partners Capital Group in Los Angeles.
Cynthia Shelton, director, investment sales at Colliers International in Orlando, confirmed that interest from 1031 buyers for single-tenant properties is strong. “There is lots of interest in these properties as it’s a rush to safety and returns that are better than T-bills and mutual funds while not as risky as stocks. Many restaurant franchisees are also coming back to the market with sale leasebacks. Individual investors are taking money out of other investments that are not getting the return that they can get in real estate. Many institutions and individuals are paying cash and financing after the close. Some are getting 50% to 60% loan-to-values with 20- to 25-year amortizations and 5- to 10-year terms depending on the tenant and term of the lease.”
Capital is coming from several sources: the private equity investor who needs income, the institutional investor who needs to stay in real estate but desires to reallocate its holdings to diversify risk and several private equity groups that are raising funds in the market promising adequate returns with low risk.