We aked Keith K. Wentzel, Managing Director of Fantini & Gorga, his opinions regarding net lease financing and the future of the market.
What types of NNN properties are the easiest to finance? The hardest?
To a great extent, three criteria impact the feasibility of net lease financing: Credit quality, location and lease term. Assets with investment grade (or equivalent) tenants, good locations, and long term leases (20-25 years) are easiest to finance. Without one or two of these criteria, financing becomes increasingly difficult. Below investment grade tenants, tertiary markets, and short term leases are major concerns and can negatively impact the ability to obtain financing for a property..
Over the last 12 months high quality assets have been in strong demand; drug stores such as “Walgreens” being the perfect example. As a result of this strong demand, cap rates for high quality assetshave been driven down to the low/mid 6 percent range. Investors are now looking for higher returns and have started focusing on properties that may not have all 3 of the criteria mentioned above. Around the end of 2010, an increasing number of investors became willing to sacrifice one or two of those criteria for better yields.
Washington D.C., New York, Boston, Chicago, Dallas, L.AandSanFrancisco are all popular locations for acquiring net leased assetsandurban infill locations with good demographics are highly sought after.
Read the full report here.