Tuesday, June 12, 2012

Urban Retail Economic Report

Urban Retail Properties News


The most aggressive cap rates Jonathan Hipp, CEO of Calkain, says he has seen has been in the mid 4s for “McDonald’s-type credit.”  Expect compression to continue, he tells GlobeSt.com.


The report also notes there is stronger investor demand for bank branches, pharmacies, and the best-performing fast food chains.Bank branches registered average cap rates of 6.1% in Q1, for example--100 basis points lower than the 7.1% average cap rate for pharmacies.

Investors, however, can be counted on to show a high degree of sophistication in their acquisitions not only across classes of tenants but specific tenants, as well. Sam Chandan, president and chief economist of Chandan Economics, tells GlobeSt.com. “Some pharmacy and bank branches are trading at sharply lower cap rates than their peers, even after controlling for variation in property quality and time to lease maturity.” For these most coveted assets, he says, debt yields are lower, as well, meaning that lenders perceive many of the same differences as relates to credit risk.

The most aggressive cap rates Jonathan Hipp, CEO ofCalkain, says he has seen has been in the mid 4s for “McDonald’s-type credit.”  Expect compression to continue, he tells GlobeSt.com. “Given where Treasuries are headed, people are looking for yield. Also, there is so much buyer interest in this product now we have gotten to the point where we almost don’t need new buyers. What we would like to have is more products.”

Not that the demand-supply imbalance will give investors pause, Hipp adds. “With everything going on, from the uncertain employment picture to the European debt crisis, at end of day people are still cautious on the economy. With the right combination of credit, location and length of lease it is a great time to be a seller in the net lease market.”
Or even a buyer, he says—but with a caveat. In this environment, current buyers should beware that an eventual exit strategy could happen in a period of higher interest rates and a diminishing flight to quality.

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