Shopping Center Business

MAY 2018

Shopping Center Business is the leading monthly business magazine for the retail real estate industry.

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NET LEASE 104 • SHOPPING CENTER BUSINESS • May 2018 office of CBRE. During the last peak, for instance, that spread was around 200 ba- sis points, according to NAREIT. At the end of 2017, when the 10-year Treasury yield was also around 2.8 percent, the spread was closer to 400 basis points. "In the grand scheme of things, a 10- year Treasury rate of 2.8 percent isn't that high," declares Pike, who with his partner brokered some $2 billion in net lease transactions last year. "We have a long way to go before it gets to histori- cally normal levels, so I'm not in the camp thinking that cap rates are going to rise much at all, if any." Balance between the demand for net lease assets and their supply should help to keep a lid on cap rates, too, remarks Scott Holmes, senior vice president and national director of the retail division for Marcus & Millichap. "A lot of buyers of single-tenant net lease assets are people who made their money in multifamily properties and are now transferring over to something that's less management intensive," he says. "But I would also say that we shouldn't expect the trend of cap rate compression that we've seen since 2009 to continue." RECIPE FOR INCREASES Other brokers, however, say that cap rate moves tradition- ally have lagged inter- est rate increases by three to six months and make the case that the market should see price ad- justments this fall, if not sooner. The best price of debt for the best net lease prop- erties with investment grade tenants al- ready has increased some 25 basis points to around 4.25 percent from last year, says Jeffrey Thomas, founder of Seattle-based Thomas Company. And they're only go- ing to rise from there, he predicts. "The speed at which those changes can occur can slow things down because there's going to be a disconnect between buyer and seller expectations," he cau- tions. "We know people that have a real need to transact, but they're taking time to digest some of these investments, espe- cially the larger deals." While sellers over the past several months have largely refused to budge on price, Thomas says that some are be- Last year Calkain Companies represented the seller of a newly constructed CVS in Elkridge, Maryland, which came with a 25-year lease and several five-year options. A 1031 exchange investor paid $5.25 million for the property, which equated to a capitalization rate of 4.95 percent. We are the world's most trusted real estate advisor, helping investors and corporate occupiers execute over $4 billion in the sale, purchase and recapitalization of single-tenant net lease properties in the last two years. How do we do it? Our net lease experts have on-the-ground experience, access to sophisticated technology, and simply put, the best people in the business to help you optimize company performance and realize asset value. • 1031 property exchange • Sale leaseback structuring • Own vs. lease analysis • Financial advisory • Investment property sales AMBITION us.jll.com/NetLease | us.jll.com/CorporateFinance ©2018 Jones Lang LaSalle IP, Inc. All rights reserved.

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