A Period of Price Discovery in Net Lease: How to Get Around It

The GlobeSt. State of the Industry panel discussion. Influential thought leaders were gathered at the net lease national fall event to discuss transactional trends, a complex industry, and lessons from 2022.

During the recent GlobeSt. market state panel discussion The panelists at the net leasing national fall event concurred that price discovery is now taking place. Will Pike, vice chairman and managing director of CBRE, said on the panel, “We are bullish on retail, but we have a pricing disparity we have to work through.” Price discovery is widespread. Pike said we have to see what happens with the Fed during the next meeting. I think we are in the second or third inning of that. He said that the primary groupings are likely to transact in the market if they have a specific purpose to sell or if they have debt coming due.

The director of investments and managing director at W. Gino Sabatini P. Carey concurred, pointing out that although deals aren’t being made right now, they aren’t being written at W. P. Carey. Price discovery is taking place right now, but ultimately someone will have to act and the market will be moved.

He noted that the disconnect results from sellers still wanting yesterday’s pricing. “I don’t know how you’re going to accomplish a 6% cap rate if you can’t borrow below 6%,” the speaker said.

However, depending on which side you are on, there are organizations out there with money to invest, according to Gordon Whiting, managing director of Angelo Gordon. If you are a seller, you probably want to make a deal right now. Being a buyer makes you slightly more cautious. Do you intend to buy a leveraged asset? Can you survive this market? It is a more complex market.

“It also depends on how you view the investment if you are a buyer,” he continued. Since I’ve been doing this for several years, 40% of people see net leasing as a credit investment, 40% see it as a real estate investment, and the remaining 60% don’t really know or care and just appreciate the return.

The sale-leaseback market is one area that Brandon Flickinger, chief investment officer of bridge net lease at Bridge Investment Group, is observing. They continue to submit numerous offers, he claimed, but very few of them are accepted.

The SVP and national director of the retail and net leasing businesses of Marcus & Millichap, Daniel Taub, a panelist, noted that there is a significant distinction between institutional and private client money. It has a subtlety to it. “Even in the face of volatility and rising interest rates, we are conducting business with a range of REITs today,” he said.

The same is true for several PE firms that operate in the sector, Taub continued. I’d argue your private client is more impacted. Taub said, “Our organization has done more than 2,000 transactions with perhaps 450 lenders.” It depends on what kind of money you have—private, institutional, short-term, long-term—that is factoring into the transactional activity. The smaller lenders are still around, but they are reaching their capacity because the terms have definitely altered. Simply put, they lack the larger banks’ depth and breadth.

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