As we
reported at the beginning of the year, small-cap properties net leased to
credit tenants are very attractive investments these days for buyers seeking
reasonable risk-adjusted yields – and no active management responsibilities.
Indeed, cap rates tied to net lease acquisitions have steadily narrowed for
quite a few calendar quarters running to this point.
But a
subset of triple-net investments – one that under some circumstances can
generate better long-term returns than straight-forward fee-simple investments
– has been attracting increased attention of late. It involves the trading of
the dirt beneath structures that are owned and operated (via long-term
leaseholds) by the merchants with their names on the doors.
Market
values of land alone logically come in somewhat below what ownership of both
land and improvements would fetch. And buyers just as logically expect a return
premium for full ownership relative to ground leases.
Hence
the historic differential in cap rates between ground leases and outright
trades of land and net leased structures is typically in the range of 50 to 100
basis points depending on location, tenant credit, lease term and structure and
related factors, notes active net lease investment broker Andrew Fallon,
assistant vice president with specialty advisor Calkain Cos. for more click here
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