Lesson Tag: FIN111IL-BR

Net-lease investment volume increased by 34.6% to $78.9 billion for the year ending March 31, the highest four-quarter total on record, as investors sought attractive yield at lower risk compared to other commercial real estate assets, CBRE reported. 

Net-lease investment volume increased by 34.6% to $78.9 billion for the year ending March 31, the highest four-quarter total on record, as investors sought attractive yield at lower risk compared to other commercial real estate assets, CBRE reported.

Volume in the first quarter ticked up 1.0% year-over-year to $13.2 billion. However, CBRE said volume is expected to drop in Q2 due to the economic fallout from COVID-19.

By market, Washington, D.C. was the most-favored investment market in Q1, CBRE said. New York City, Los Angeles and San Jose had the most volume over the past four quarters.

Investors looked increasingly to net-lease investment opportunities in high-growth secondary and tertiary markets. Some of the largest four-quarter percentage gains occurred in Kansas City, the Inland Empire, San Diego, Austin, Indianapolis and Cincinnati.

Net-lease cap rates were stable in Q1, but are expected to rise in 2020 due to suppressed investment activity from the COVID-19 pandemic, according to CBRE. Spreads widened in Q1 to 557 basis points, the most in seven years, as the 10-year Treasury rate hit an historic low of 0.7%.

Meanwhile, the global search for yield and portfolio diversification continued to attract international investors to the U.S. market. Cross-border capital for net-lease properties totaled $9.3 billion for the year ending in Q1, representing a 38.7% jump from the year-ago period. Canada, Germany, Spain and Switzerland have been the top countries for inbound capital over the past two years.

By price, Q1’s biggest net-lease transaction occurred in the office market, as the federal government finalized its $760-million deal for the U.S. Department of Transportation headquarters in Washington, D.C (pictured). The seller was JBG Smith.

That being said, industrial comprised the largest sector by dollar volume in Q1, representing 43.8% of the total. Industrial’s gains offset declines in the office and retail sectors, CBRE said.

Video Time: 17 Minutes

What Do Experts Think About Biden’s 1031 Exchange Proposal?

Camille Renshaw states most politicians have wanted to get rid of 1031 exchange. It seems incredibly unlikely that Biden would actually be able to get that done at this point in time.  Some experts are more worried about a 15 or 20-year time horizon than the next year.  However, near-term it may affect the seller activity. Net lease is one of the most stable asset classes so long-term capital will flow into this asset class. Near-term if there is a repeal in 1031 exchanges in 2021 there could be a disruption in the market.  The industries that would get hit hardest by a repeal of 1031 exchange would be smaller law firms, smaller title companies and similar.  Camille Renshaw sees repealing 1031 exchanges as a huge negative. 

Helpful Terms for Lesson 4

• Single net or “N” leases: the tenant pays the basic monthly rent plus property taxes (just one N). The landlord or property owner pays operating expenses (also known as common area maintenance or CAM) and property insurance.
• Double net or “NN” leases: Tenants who have a double net lease pay two of the three expense categories. These leases are also called net-net leases.
• Triple net or “NNN” leases: the tenant pays the basic monthly rent plus property taxes, property insurance, and operating expenses (all three N’s).

Directions

Once you’ve finished this video lesson, you will need to complete a one-question quiz. Once the quiz is completed, you will be directed to the next video lesson section and this will continue until all lessons and quizzes are completed.  Once all lessons and quizzes are completed, you will be prompted to take the final exam.

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Video Time: 10 Minutes

Are Experts Seeing More Financing Requests or Redevelopment/Repositioning Requests? 

Are there lenders active in the space and what do they look like? Experts predict that the biggest trend that will come up in the next several years will be what’s called “renovation to suit”  There are a lot of ‘retreaded drug store deals.’ –  15-20 year drug store that now has a new 15 year lease. The rent is now $14 per square foot not $21 or $22. There is a growing trend for mall owners to demolish the mall and split the property into a number of smaller retail boxes with separate parking lots.  Unlike in 2008-2009 when things just shut off and there was an obvious liquidity crisis. This feels more like a rolling liquidity crisis because the fed is pumping so much money into the market.  

After watching the video, be sure to complete the one-question quiz to proceed.

Video Time: 18 minutes

What Does Deal Flow Look Like Right Now and What are Experts Seeing with So Much Momentum? 

Experts are seeing a lot of unusual pressures in the market right now.  There is a lot of capital coming into the market as of this summer. In terms of deal flow there’s a lot of moving parts, according to Camille Renshaw. When entering into long-term leases owners should be careful of who they are signing due to the current environment. Zachary Pasanen discusses what he has seen recently on the deal flow front.

When the video ends, a quiz will appear below. Take the quiz to proceed to the next lesson.

Video Time: 16 minutes

Experts Discuss Supply of For-Sale Product in the Current Environment 

Are sellers confident right now and is there good ROI? There is more demand than supply right now A number of restaurant and retail assets have been disrupted by the COVID-19 pandemic. Those have been slow to trade and if there is any trading at all it is in the distressed category. Stabilized assets are seeing more demand than supply. In the initial part of COVID-19 experts were focused on making sure tenants were paying rent. Now they are seeing private capital coming in and leading to increased deal flow.  

Helpful terms for Lesson 1

• Net lease: Contractual agreement where a lessee pays a portion or all of the taxes, insurance fees, and maintenance costs for a property in addition to rent. Net leases are commonly used in commercial real estate. In the purest form of a net lease, the tenant is expected to pay for all the costs related to a piece of property as if the tenant were the actual owner.
• Tenant improvements: Improvements done on the interior of a space, which can be paid for by the landlord and/or the tenant, depending on the lease.

When the video ends, a quiz will appear below. Take the quiz to proceed to the next lesson.