Net Lease May Wobble But It Always Remains Steady
“We really think that on the most affected assets, cap rates will move 50 bps in the coming year, and for most assets we think there will be very nominal movement,” said Camille Renshaw, CEO and co-founder of B+E Net Lease. “The belief of our house is that anything over $100 million will probably have cap rate compression depending on quality, and also for the best assets. For everything else, it’ll be pretty stable.”
And for smaller deals, buyers are “very motivated,” she says, adding that B+E Net Lease has more than $1 billion in 1031 exchange needs right now.
“As we look at the $1 million to $7-8 million subset, where primarily exchangers are playing, they’re just not as impacted by the mortgage rates because they typically don’t take on as much debt,” she said. “Their ultimate IRR is just not as impacted. And it’s impossible to buy enough product.”
The flight to quality is also ongoing, Renshaw says, noting that the market is suffering “such a shortage” of quality assets.
“I’m not talking about added-value, risky credits, short-term leases,” she says. “We’re looking at 10- to 20-year leases with strong private credit or investment rate credit and for the most popular uses. That’s what everyone is in a slugfest for and we’re not seeing any movement away from those assets.”