Net Lease REITs and Private Aggregators Increase Retail Acquisitions Targets
As rising interest rates and slowing investment activity in other property sectors force leveraged net lease retail investors and many 1031 exchange buyers to retreat, net lease retail REITs, aggregators and cash buyers are anticipating an extremely active acquisitions environment for the remainder of the year.
“Market dynamics and the competitive set is different than it was a few months ago,” says Chris Czarnecki, CEO of Broadstone Net Lease, a Rochester, N.Y.-based REIT. “We’ve clearly seen the levered buyers, the PE-backed buyer, [and] the secured financing buyer all generally exit the market, which has created a little bit of cap rate relief for us and ultimately, allowed certain asset classes to look more attractive.”
Net lease retail investors continue to focus on and show a preference for credit tenants and those with strong balance sheets. However, many REIT investors, such as Realty Income Corp. and Agree Realty Corp., are seeing attractive risk-adjusted opportunities in the non-investment grade space. And credit aside, investors are increasingly focused on rent escalations and lease terms.
“REITs are gearing up for a big end of year, given yields have risen alongside cost of capital,” says Spencer Henderson, a director in B+E Net Lease’s San Francisco office. “The most active sellers have been institutional, driven to adjust portfolio allocation and unload shorter-term leases or underperforming assets.”
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