The search for "stable" investments: The demand for net lease
It seems that another year for the triple net lease market, with demand far exceeds supply in most parts of the country. Thanks largely to the population of baby boomers seeking new types of investments for retirement, Demand remains high, and demand mostly comes from people who are in the middle of 1031 tax deferred exchanges. And even in the light of interest rates the rise, cap rates tend to remain low prices are stable. Shopping Center Business recently spoke with several companies that are active market triple net to find out more about these trends and what can we expect for 2006.
Demographic Change
The main reason for the current triple net market status is the changing demographics of the baby boomers moving into their retirement years. According to Bruce McDonald, president of the Network Advisory capital lease, there are about 75 million baby boomers, the oldest of which are just hitting the age of 60 years, so there are a lot of Americans seniors who have accumulated considerable wealth in real estate portfolios. Their ability to enter the market net lease that allows them to avoid paying tax on capital gains and move from the intensive management of real estate properties real passive income that provides a stable. "There are lots of people who have portfolios constructed single-family, duplex or triplex, and they are getting too old to worry about that and we now have a yin to an investment management without produce a regular flow of cash, "says Ralph Bunjes, President of Reverse Exchange Services, Inc." The traditional triple net model of these investors was a owned by a single tenant, a Burger King or the post office, and that fit your criteria. Now, as a result of this demographic change has been the creation the [tenant in common] ICT industry. "
In addition to no investment management, many of these retirees are looking for "safer" investments compared to the market approach of traditional values.
"There are lots of people who had previously invested perhaps in the stock market other investment opportunities and more comfortable entering the market triple net now, "says Leith Swanson, president of the First Network Realty Advisors, Inc." a lot of very wealthy investors – individuals and entities – that are in the market and at the same time there has been a lack of quality investment grade properties net lease available for this group of investors to buy. So what we have finished the last couple of years is a huge number of investors who are investing due to the requirements of 1031 or simply because they are in the market and are doing a dozen deals a year. "
While most agree that triple net investment is becoming more popular, a person who thinks that he spoke with the stock market still has some appeal. "I think the media has been successful in helping to create the perception of the housing bubble out there, "said Keith Sturm, director of the Highlands Group Real Estate." I I do not think there is a bubble, but certainly the clients have been a little more questions about real estate just based on what they hear on TV. With that, I realize that the stock market has become sexy again. People have very short term memories and have forgotten what became his 401K 101KS the stock market in recent "Accident." Those memories have faded, and people who think they are jumping back in. "
Earning interest
Interest rates in triple net investment may be rising, but cap rates so far have not necessarily followed, according to several people who spoke, and the price remains constant. "Demand remains strong because people are not just looking for property management and leasing net seems to fit the law," Jay says Bastian, senior vice president of commercial real estate acquisitions net lease.
"If the Treasury stay where they are, or downward, I think cap rates will likely keep their current levels, but obviously, the Treasury is a conductor of capitalization rates in some areas. Everyone talks about the increase in interest rates, but do not see demand slip because of it, but only changing the prices of offers. "
"It's still a sellers' market incredible," says James Dwoskin, President of ICA Realty. "Sellers are still holding tight to the prices presented originally in place in an environment of lower interest rates, but it seems that there has been no movement in cap rates on credit offers higher. In retail credit offers, there has always been flexibility and play in the pricing. "
According to William H. Winn, President PASSCO Companies, LLC, the offer is still limited and there is more demand from buyers. "However," he says, "the movement of interest rates has changed a little the market. The increase in interest rates, and will continue to put downward pressure on yields, and the trend continues, demand reduced the buyer side. "
Winn continues, "If sellers do not lower their price expectations, the result is a lower volume of transactions because buyers and sellers can not reach an agreement on purchase price. "
McDonald says he has not seen a change in prices.
"All the world would think that cap rates will follow up the interest rates, "he said." If interest rates continue to rise, may be a change in prices at some point, but so far it's early. Usually there is a delay anyway, but I think this market is not likely to occur a longer delay between interest rates and types of cover. "
Jonathan Hipp, president of Business Calkain Has a similar view.
"There's a lot of activity with tax motivated buyers and a lot of fresh capital that is not bound to change," Hipp said. "Although interest rates have gone up, cap rates have not seemed to move mail along with interest rates as well there are some very aggressive cap rates compared to what the debt is ".
According to Sturm, the properties of lower-priced, quality is maintained its capitalization rates, and in the category of non-investment grade properties that are in the range of $ 1.5 to $ 5 million, there is a real pressure to capitalization rates increase.
"The trend I'm seeing now is that there is enormous pressure on capitalization rates, based on interest rates, is causing a bit of a slowdown in the market until rates can be adjusted capitalization rates of interest, "says Sturm.
2006 Market
So what effect will the changing demographics and increasing interest rates in the long term?
The big risk is that people are buying a large market, according to Bunjes, but how long it will last is the burning issue.
"Demographic change is likely to continue to press to such investments for the next 10 years, at least, "he says." But the question is, these investments will be popular and demand there if the housing market must fall down? If housing values fall, the whole focus is going to have to be in long-term interest rates. So just watch the rate at 10 years and they will tell what happens in that market. "
There are many forces that will occur to facilitate capitalization rates in 2006, says Barry Silver, senior partner at Silver Willis Investment Real Real.
"For the first time in my experience, investors are not willing to accept such small claims and have turned to the ICT market, "he says." And they are selling a higher current yield, without a lot of thought to the ramifications what will happen when the debt follows the interest rates we will see in 5 or 10 years. "
Swanson says that capitalization rates for properties net lease will be higher in 2006.
"We may not see fourth quarter will look as good as the results of the third quarter is looking for. However, capitalization rates have historically lagged behind movements in interest rates, although cap rates have continued to drift lower in September October and November, interest rates have remained fairly stable in general. But there are some inflationary pressures, and we will see an increase in capitalization rates, possibly late next year. "
"An average capitalization rate of a long-term ownership triple net between 8 and 10 percent," Bunjes added. "Many of them are selling at 5 to 6 percent today, and that's largely because low interest rates. If interest rates rise, then capitalization rates rise, as capitalization rates rise, investors who invested their money and lose that cap rates will change. "
While competition remains strong, it may be a more difficult market in 2006, Paul Domb, asset manager of the Trust Fund.
"As interest rates rise, major players – large and CNLS REITs – are still doing business, and I think many of the Johnny-come-lately will not be able and compete in a tough market. "
Hot Property
What, where and how 1031 is being reversed. With the success of triple net lease and exchanges of 1031, what types of investments it makes more sense these days? Shopping Center Business recently spoke with James Dwoskin, President of ICA Realty, Paul Domb, asset manager for the Trust Fund; Ben Simon, a partner Enterprises Simon Leith Swanson, president of the First Network Realty Advisors, Inc., Bruce McDonald, President Network Advisory leasing, Jonathan Hipp, President ofSusan H. Fishman, Keith Sturm, principal with the land High Real Estate Group Inc., Michael Shephardson, Trustreet Properties executive vice president, and Dan McCabe, chief investment officer of GSE for more information on the types of properties and investments that are at the top of the list for today's investor.
SCB: What types of properties in 1031s hot right now?
Domb: From our perspective, a type of ownership is not better than the other, and we do everything – offices, branches of commercial banks, industrial, pawnshops, 7-11, whatever – all one tenant.
Simon: On the sell side, is the Eckerd and CVS that are emerging from the earth. If you can get a builder who is doing them, then you might be able to get your arms around a new product.
McDonald: All properties are sought for 1031. I think what we normally between the size of the purchaser 1031 in terms of the amount of money they have to reinvest. In a normal bell curve, only a lot more people have less $ 1031 – $ 1 million to $ 5 million – to invest. You have a lot of smaller retail properties, such as pharmacies and fast food restaurants. Placing it in a broader perspective, retail has the most transactions, but not so high because the industry and the office tend to be higher offers.
Hipp: What used to be primarily retail, but now there is more office and industry. But I would say even less because it is the product that there is out there – a 7000 square meters, Advance Auto or 3,000 square meters, video store. The most requested property is any property with a pure triple net credit reasonable, or behind him and income increases. More than ever, I see the buyers who have to buy something other than what they expected and with lower yields than expected.
Sturm: A new lease of one tenant, good credit, well located properties are really what the majority of sales today. We a lot of retail, and is what we classify as a minimum management properties. Bestsellers we see today are passive real estate investments, where the owner receives a check only on a daily basis.
McCabe: There are a variety of desired properties to 1031s. I've seen everything from large industrial they break down and the typical semi-regional commercial center for the oil and gas interests and multi-tenant office buildings. Almost depends on what the author can find. Am seeing a significant number of multi-tenant product, ie, office buildings, medical facilities. There is little experience of dollars Too good few.
SCB: How difficult is to find the properties?
Dwoskin: The best properties are very difficult to find. There are plenty of less credit, buildings special type, things like local hire network franchise restaurant – those are always readily available. The hardest things to get are leased properties are important assets, such as storage and distribution facilities, office buildings or facilities located retail that are rented to tenants credit to investment grade. In recent years, most users of high credit big boxes like Wal-Mart, Target, Costco, Home Depot and Lowe, have decided they no longer want to be tenants if you can avoid and want to own all its properties. So these deals are evaporating, there are very few, if any, on the market. So what is the investment-grade credit offers is coveted, and people will pay more for them.
Hipp: The properties are not difficult to find, hard to find something that makes sense. It is still a market where, if you see something you like, you gotta go after him.
Shephardson: We are very specialized and focused on the work in two primary sectors – 90 percent of our business is in the restaurant arena and the other 10 percent is lower in general, including pharmacies, banks and gas stations and convenience. We found that because we have been in business for so long and know so many restaurant operators, and because of our business strong acquisition efforts of our origin, we have no problem finding the products.
SCB: Where are the seekers of property?
Domb, 1031 For the investor, private property is an important factor, so the local properties would be key. Credit and type of real estate are secondary or tertiary considerations. The inverter 1031 is struggling to find quality investments.
Swanson: I usually deal with clients in the range of $ 7,000,000 $ 10 million or more, and the area does not seem to matter, though obviously not going to buy a lot of properties in Louisiana and Mississippi. The catalyst for the growth engine in the net lease market is the fact that the investor can move across state lines and not be relegated to its own backyard.
McDonald: The product is distributed throughout the country, there are certain areas for different types of products. Southeast Florida and everything is great growth areas and so are the western states. Office and industrial headquarters building offers being made at all – they tend to be in distribution centers, such as Memphis or New Jersey.
SCB: Are ICT structures is increasing?
Swanson: ICT structures offer the individual investor does not have $ 3,000,000 to $ 7 million the opportunity to jump, so it's really drove the market growth we're seeing.
McDonald: They are definitely increasing. In 2001, they did about $ 160 million in capital this year they are expecting to make $ 4 billion of capital – and that's just on the side of values. Therefore it is evident that there is great demand, and ties in the fact that 1031 Most buyers have less capital and ICTs allow them to have a bit of a passive investment. It is clearly a product that there is significant demand for.
Hipp: They are becoming a very popular vehicle and much more publicized and well known. There are plenty of people out there with $ 200,000 to $ 300,000, and it is difficult buying something without a lot of leverage. Would prefer to associate with a group of others to acquire an asset quality every time someone worry about the management.
Hipp: The ICT market is definitely becoming more popular, and I think they have a purpose. But when people start buying properties with interest loans just so they can cash flow, I think it's a double edged sword, because when the loan matures in 5 years, will be in the market looking for debt in a way different interest rate environment. I'm sure you have exactly what they are buying.
Sturm: We believe that the structure of ICT is really the future of liabilities of investment real estate. The baby boomers as a demographic just turned 59 and a half, and it's not long until their 401K plans will be available to start throwing down money on a tax deferred basis. But what we are finding is that the quality of the properties of ICT are investment grade are able to attract funding at this time very well. We are able to obtain long-term funding fixed at 5 to 6 percent range, while the net lease properties we're talking 1031 or have been funded in the range of 6 to 7 percent.
Shephardson: ICTs have the most wonderful application 1031 area in which you are selling a set of assets and will sell a big asset at $ 10 million to $ 20 million and wants union among many buyers. So the only thing holding back the ICT market is the potential failure if it is a real estate product or a product exchange. We hope that we will do ICT in the not too distant future, as it expands the buyer universe.
by Susan H. Fishman
About the Author
Susan H. Fishman
William S. Burroughs – Commissioner of Sewers
|
|
Hunter 23562 Sea Air 52-Inch 5-Blade Ceiling Fan, Weathered Brick with Medium Oak Finish Plastic Blades $132.81 The Sea Air is ultimate Outdoor fan… |
|
|
DEWALT DW092PK 20X Transit Level Package with Tripod, Rod, and Carrying Case $755.26 With transit capability to determine vertical angles, the DeWalt DW092PK 20x Transit Level Package with Tripod, Rod, and Carrying Case features 20x magnification for a range that exceeds 200 feet. Capable of providing a +/-1/4-inch per 100 feet accuracy, this kit also comes with a 360-degree horizontal circle with vernier scale for precise measuring of horizontal angles. The included tripod’s heav… |
|
|
White Marble 1 Hexagon HONED Mosaic Tile Meshed on 12×12 sheet $10.75 Bianco White CARRARA Marble HONED 1″ Hexagon Honed Tiles meshed on sheets. The price is for 1 sheets. Beautiful Tiles, Great Price. Buy it Now before it gets out of stock. Please note that all orders over 120 sheets, our free shipping offer is only good for commercial address or you would pick up your order at a trucking terminal near you…. |