Net Lease Opportunities Abound in 2017

By Scott Campbell, Associate Director, Calkain Cos.: A renewed confidence in the U.S. economy will likely bring many buyers to the net lease market next year.

Scott Campbell, CalkainWith the Fed finally hiking up rates and the president-elect discussing his proposed new tax plan, net lease developers and investors alike will have a lot to contemplate in 2017. Even though the common consensus is that cap rates will rise due to the rate hike, it is probably not something we will see as soon as most believe.

As the cost of debt increases, many will look for rising cap rates, but investors may have to go to the secondary markets if they’re looking to borrow money in for their transaction. With cap rates continuing to fall in markets such as Florida and California, debt simply does not make sense for brand new construction projects. Many investors will thus have to turn to assets with less years remaining on primary term, and look just outside the major markets for their purchases. These properties still provide great opportunities to buy a solid piece of real estate with minimal-to-no landlord responsibilities. Take Calkain Cos.’ Dollar Tree listing in Kissimmee, Fla., for example. Dollar Tree took over the former Walgreens property last year. Located just outside of Orlando, Kissimmee is a flourishing market with fantastic growth potential. The opportunity for solid real estate and an abundance of surrounding national retailers with an asking cap rate of more than 6 percent makes this a very attractive asset for an abundance of investors.

The production of smaller and mid-size retailers is expected to surge in 2017, which could mean more opportunity for net lease assets. People Dedicated to Quality (PDQ), a Tampa, Fla.-based Chicken concept, plans to nearly double in size from its current 55 properties to 100 in the next couple of years. Focused mainly in Florida and the Southeast, the chain is giving investors the opportunity to have highly visible real estate with long-term, triple-net lease options. Some of the major retailers such as Starbucks, Wawa and Chick-fil-A are also looking to aggressively expand in the coming years.

Before 2016, the Fed last raised rates in 2006, which ultimately shows a greater confidence in the economy today. This optimism will bring many buyers and active retailers to the net lease market in 2017. Buyers that are new to the net lease market will have great opportunity for growth, but they must understand the dynamics of the constantly changing retail market and evaluate how the new administration impacts the industry in order to be successful.