Credit Squeeze effects NET LEASE DEALS

Has the Credit Squeeze Put the Squeeze on Net Lease Office Deals? September 04, 2007 By Dees Stribling, Contributing Correspondent
Until sometime this summer, it looked to be a strong year for office-oriented net lease deals, a segment of the net lease market often overshadowed by more numerous retail deals. As with the rest of the market for investment properties, however, all bets are off now, though the period immediately after Labor Day may shed light on whether the market segment will see renewed velocity.According to Dan Fasulo, a partner with Real Capital Analytics, investors are still waiting for volatility to die down, "but no one's quite sure how long that's going to take," he said. This wait-and-see attitude applies not only to the big real estate M&A deals and the portfolio transactionswhich tend to get the most attentionbut also the sort of smaller deals typically represented by net lease transactions.
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Randy Blankstein, president of Northbrook, Ill.-based Boulder Net Lease Funds, agrees that the summer was marked by sluggish uncertainty in the net lease world, including the previously robust office segment. "There's been uncertainty in pricing, and so July and August were slow," he said. "Lenders havent figured out quite where to set the bar yet."Once velocity returns, net lease investors may pick up where they left off, according to Blankstein. According to Boulder Net Lease Funds' Net Lease Market Report for the second quarter of 2007--the most recent available, published before the liquidity freeze inspired by the subprime meltdown--the sale of net lease office properties had spiked in the second quarter of this year, compared to the first. Some 4,122 office properties were sold in net lease deals the second quarter, compared with 1,796 in the first, a 130 percent increase."The cap rate advantage that retail net lease properties enjoyed in recent years had pretty much disappeared by the early part of the year," Blankstein noted. "That was the case before the credit crunch, and it probably will be as investors return to the market."He predicts an uptick in net lease deals of all varieties by last quarter of this year at the latest, office deals included. "Pricing will stabilize, and there are also owners that need to sell before the end of the year," he said. FOR MORE INFORMATION SEE : www.houstonrealtyadvisors.net or www.houstonrealtyadvisor.com