Net Lease Solstice

By David Sobelman

When describing the point at which the Sun's apparent position in the sky to reach its northernmost or southernmost extreme, one can only wonder if that is what is happening in the net lease investment community; has there been an extreme change in the industry. We have all seen transaction volume decline, but is that the only variable driving the market? What about capitalization (CAP) rates, lease terms and values of underlying real estate. Has an extreme determination been concluded on the net lease investment market? Are we reaching the "solstice" and will we now see stabilization over time? One thing is for sure, investment parameters have changed, but an extreme polarization of the net lease market has not. CAP rates remain somewhat stable as compared to more volatile investment segments, i.e., vacant properties, land, multi-family, etc. So reaching the net lease solstice has not occurred and may not as the nature of the investment segment does not allow itself the volatility of extreme market changes.

I Want a WAG!

By David Sobelman

NYSE: WAG! Walgreens has always been the stereotypical net lease investment. Bringing together single-tenancy, strong credit, triple net lease, and a "Main and Main" location, investors have sought out Walgreens as long term/stable investments. This current market cycle has only accentuated the desire for a WAG in one's portfolio. It wasn't that long ago that when you explained the potential return one would receive from this bond-like investment, roughly 6.5 - 7.5%, people would shun the notion of accepting that yield for such a long and finite period. However, compared to today's Money Market and CD rates, that CAP Rate doesn’t look all that bad. In fact, it may be higher than what people are currently receiving in similar "stable" investments.

There are dozens of Walgreens for sale today. But when you have several to choose from, the real estate of the site becomes ever more important. Gone are the days that you could purchase a WAG in Leoti, KS and believe that it is the exact same investment as one in Sarasota, FL. Lenders will look at the assets completely differently, even though the same lease, same credit and same building (most likely) will be present.

So pick your investments wisely as even WAG investors are becoming more discriminating.