Net Lease Market Slammed in 2007

As fourth-quarter 2007 commercial real estate numbers trickle in early this year, they’re only confirming what everyone suspects — the credit contagion has left its mark on every aspect of the business. Northbrook, Ill.-based Boulder Net Lease Funds L.L.C.’s Net Lease Market Report for fourth 2007 follows the pattern by noting that the net lease market contracted significantly in the quarter, both in deal volume and cumulative asset value. “There’s no doubt that the net lease market has sustained its largest down quarter,” said Randy Blankstein, president of Boulder Net Lease Funds. “The question now is where does the market go from here?” On that point, Blankstein is cautiously optimistic. “It’s not likely that we’ll see another steep decline like the fourth quarter,” he said. “Market conditions are stabilizing.” According to the report, between the third quarter of 2007 and the fourth quarter, the number of available net lease assets decreased from 24,224 properties to 18,186, down about 25 percent. The value of the net lease assets on the market dropped about 14 percent, from $62.5 billion in third quarter 2007 to $53.5 billion in fourth quarter 2007. Moreover, deal volume is off. During the fourth quarter last year, 3,290 net lease properties were sold — fully 75 percent lower than the third quarter. “A lot of that seems to be sellers taking themselves out of the market,” said Blankstein. “Unless there’s a good reason to sell, such as expiring debt, it isn’t going to happen. Sellers are looking to ride out the storm.” According to the report, the declines in the net lease market affected all property types — industrial, office and retail. The number of industrial properties sold, for instance, was down 16.9 percent between third quarter 2007 and fourth quarter 2007 — the smallest decrease among the three property types. By contrast, the number of retail properties sold was down about 78 percent between the quarters, from 6,656 to 1,440, and the number of office properties sold was also down about 78 percent, from 3,714 to 830.