\u201cThere is no shortage of capital,\u201d stated Mark West, co-leader of JLL\u2019s national corporate finance and net lease group. \u201cEverybody is active in the market\u2014banks, debt funds, life insurance companies, and the CMBS and CLO market. And overall underwriting is very good; it\u2019s not overly aggressive like it was in 2007.\u201d<\/p>\n
![\"\"](\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2021\/10\/McLaren-1.jpg\")
<\/a>Global Net Lease secured financing in just two weeks for its acquisition of the McClaren Campus,in Surrey, England. Image courtesy of McLaren<\/p><\/div>\n
Net lease industrial property sales totaled $34.7 billion in the first half of 2021, a year-over-year increase of 8.6 percent, and accounted for 48 percent of net lease dollar volume, according to CBRE, which analyzes single-tenant asset sales as a proxy for net lease investment trends. Over the same period, net lease office sales declined 6.1 percent to $21.9 billion and accounted for 30.3 percent of total volume.<\/p>\n
As a result of the high demand and the limited amount of assets on the market, cap rates continue to compress. In the third quarter, rates for industrial properties in the U.S. dropped 19 basis points to an average of 6.7 percent, while cap rates for office properties fell 15 basis points to 6.8 percent, according to the Boulder Group.<\/p>\n
Both were historic lows and coincided with a decline in the 10-year Treasury yield early in the quarter, Boulder Group said. But between late August and mid-October, even a 30-basis point rise to push the benchmark rate to around 1.5 percent had failed to materially affect interest rates, observers said.<\/p>\n
Against that backdrop, lenders are eager to put money to work, particularly in the industrial space. When it comes to the office sector, lenders are being more selective than before the pandemic amid lingering questions about long-term utilization of space, observers say. But they still have a strong appetite for build-to-suit projects and single-tenant properties occupied by financial, technology or other mission-critical companies. Less appealing to debt sources is a back-office unit leased to a company in an industry that still looks risky due to COVID-19.<\/p>\n
\u201cThe amount of debt capital is deep and competitive across all sources,\u201d said Travis DeBee, vice president of capital markets at Stonemont Financial Group, an Atlanta-based investor with $4 billion in assets under management. \u201cBut which lender borrowers go with depends a lot on the investor\u2019s hold period and what they are looking to do long-term with the asset.\u201d<\/p>\n
Stonemont typically works with banks and other balance-sheet lenders and has a three- to five-year investment horizon. With a 10 million-square-foot portfolio, the firm is focused on office and industrial build-to-suit and sale-leaseback transactions, as well as speculative industrial development. \u201cMost banks have a lot of liquidity,\u201d he explained, \u201cand we\u2019re seeing them get more aggressive.\u201d<\/p>\n
No Lack of Options<\/h2>\n![\"\"](\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2021\/10\/Net-Lease-Cap-Rates.jpg\")
<\/a>Source: The Boulder Group<\/p><\/div>\n
Net-lease borrowers that are looking for permanent, 10-year fixed-rate financing will find life insurance companies most competitive on the cost of capital today, especially on a deal with a highly rated credit tenant, said Craig Tomlinson, senior director & partner at Stan Johnson Co. By comparison, the buyer of an asset with a riskier profile may receive more leverage from CMBS lenders.<\/p>\n
To illustrate the variations, Tomlinson cited the example of a term sheet for a $25 million, 10-year loan on an office and laboratory property with a BBB-rated tenant. A life company offered an interest rate between 3 percent and 3.25 percent but didn\u2019t commit to a range for loan-to-value. A CMBS lender offered up to 75 percent LTV\u2014or 60 percent to 65 percent with full-term interest-only payments\u2014at a rate of 3.1 percent to 3.5 percent. And a bank lender that would provide up to 70 percent LTV offered an interest rate ranging from 3.25 percent to 3.5 percent, although it offered a 2.85 percent rate for a shorter term.<\/p>\n
\u201cEvery lender has their fastball,\u201d Tomlinson stated, \u201cand borrowers need to recognize that they are set up to reward you for different kinds of deals.\u201d<\/p>\n
Indeed, institutional investors like pension funds looking for long-term holds are most likely to turn to life companies. By contrast, the substantial interest-only terms currently offered by the CMBS market appeal to investors that need high cash-on-cash returns over a shorter period, said Will Pike, Atlanta-based vice chairman & managing director of CBRE\u2019s net lease property group and corporate capital markets practice.<\/p>\n
\u201cCMBS lenders are extremely aggressive because there is a lot of demand for pools that contain a good amount of industrial,\u201d said Pike. \u201cNot all groups are looking for CMBS financing, obviously, but for certain investors the product looks pretty nice.\u201d<\/p>\n
<\/a>Source: The Boulder Group<\/p><\/div>\n
Net-lease borrowers that are looking for permanent, 10-year fixed-rate financing will find life insurance companies most competitive on the cost of capital today, especially on a deal with a highly rated credit tenant, said Craig Tomlinson, senior director & partner at Stan Johnson Co. By comparison, the buyer of an asset with a riskier profile may receive more leverage from CMBS lenders.<\/p>\n
To illustrate the variations, Tomlinson cited the example of a term sheet for a $25 million, 10-year loan on an office and laboratory property with a BBB-rated tenant. A life company offered an interest rate between 3 percent and 3.25 percent but didn\u2019t commit to a range for loan-to-value. A CMBS lender offered up to 75 percent LTV\u2014or 60 percent to 65 percent with full-term interest-only payments\u2014at a rate of 3.1 percent to 3.5 percent. And a bank lender that would provide up to 70 percent LTV offered an interest rate ranging from 3.25 percent to 3.5 percent, although it offered a 2.85 percent rate for a shorter term.<\/p>\n
\u201cEvery lender has their fastball,\u201d Tomlinson stated, \u201cand borrowers need to recognize that they are set up to reward you for different kinds of deals.\u201d<\/p>\n
Indeed, institutional investors like pension funds looking for long-term holds are most likely to turn to life companies. By contrast, the substantial interest-only terms currently offered by the CMBS market appeal to investors that need high cash-on-cash returns over a shorter period, said Will Pike, Atlanta-based vice chairman & managing director of CBRE\u2019s net lease property group and corporate capital markets practice.<\/p>\n
\u201cCMBS lenders are extremely aggressive because there is a lot of demand for pools that contain a good amount of industrial,\u201d said Pike. \u201cNot all groups are looking for CMBS financing, obviously, but for certain investors the product looks pretty nice.\u201d<\/p>\n
![\"\"](\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2021\/10\/1833-AerialviewoftheMcLarenProductionCentreleftandMcLarenTechnologyCentreright.jpg\")
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