This weeks perspective is provided by Mike Sullivan:
The Director of Research in our office stopped by this morning to solicit my 30 second take on the current state of affairs in the capital markets. In particular, he wanted to know if the market is getting better to which I responded it is. At least it feels like it’s getting better. After years of reluctance by owners to sell either because they refused to believe values had decreased as much as they had or because they could not afford to take the hit on their books, we are seeing evidence of owners and servicers alike selling properties at market prices. This realization has helped to increase activity in many markets. As Jim wrote in last week’s post, our team closed on several properties last month ranging from value add to completely stable. Each one traded where it should have given its respective circumstances.
One of the properties we sold was a single-tenant property leased to a local single-entity health and fitness operator. Well located and on a long-term lease, we were able to identify a buyer that was a near-perfect fit for the offering based on their familiarity with the property and appetite for single-tenant, stable deals. We have a few other single-tenant deals either under contract or in the pipeline to bring to market. This activity seems to confirm what I just read in Retail Traffic this week. Namely, the amount of retail net lease assets for sale continues to rise. The article noted that while Walgreens and similar high-credit assets continue to sell at very aggressive cap rates, many investors are seeking investments with lesser credit tenants but offered at higher yields, many of which can be found in secondary markets. The sale noted above fits that description perfectly, as does another we currently have under contract. And the cap rates for each reflect these characteristics.
Speaking of cap rates, those for highly desirable offerings, such as Walgreens, Dollar General, corporate-run restaurants, bank branch ground leases, etc. are continuing to compress while those offerings with lesser credit tenants in secondary and tertiary markets are rising slightly.
Have a great rest of the week and an even better weekend.