THE NET LEASE BIG BOX REPORT FEBRUARY 2015 BIG BOX ASKING CAP RATE COMPARISON Q4 2013 (Previous)
Q4 2014 (Current)
Basis Point Change
7.10%
6.71%
-39
BIG BOX VS. NET LEASE SECTOR MEDIAN ASKING CAP RATE Sector
Q4 2013 (Previous)
Q4 2014 (Current)
Big Box
7.10%
6.71%
Retail Net Lease Market
6.85%
6.50%
Big Box Discount (bps)
25
21
BIG BOX PROPERTIES MEDIAN ASKING PRICE Average Price
Average Price Per SF
Investment Grade
$6,519,479
$189
Non-Investment Grade
$6,232,500
$139
Sector
BIG BOX MEDIAN ASKING CAP RATE BY CREDIT RATING Investment Grade Cap Rate
Non-Investment Grade Cap Rate
Basis Point Spread
6.00%
7.00%
100
MARKET OVERVIEW Cap rates in the single tenant net leased big box sector compressed from the fourth quarter of 2013 to the fourth quarter of 2014 by 39 basis points. The compression experienced by the big box sector was greater than the overall net lease retail sector, which decreased 35 basis points over the same time period. With net lease retail cap rates at their historic low levels, investors have been able to achieve higher yields in the net lease big box sector as net lease big box properties were priced at a 21 basis point discount to the entire net lease retail market in the fourth quarter of 2014. The primary reason for the cap rate discount available in the big box sector can be attributed to the re-leasing risk associated with the square footage of the properties and the significantly higher absolute price point when compared to the net lease retail market. Net lease big box transaction velocity was down 47% in 2014 when compared to 2013 primarily due to a lack of new free standing construction as tenants such as Hobby Lobby, Ross and T.J.Maxx have been able to backfill second generation or inline space at low rents. Big box properties tenanted by investment grade companies remain at the forefront of investor demand. However, the entire big box sector was made up of only 43% investment grade tenants in the fourth quarter of 2014. Big box properties tenanted by investment grade companies commanded a 100 basis point premium versus non-investment grade companies. However with retail cap rates at historic lows, some investors have looked to acquire higher yielding non-investment grade properties to boost portfolio returns. In 2013, big box transactions were dominated by REITs which accounted for 69% of all sales. In 2014, there was a shift in buyer type within the big box sector. Private buyers accounted 47% of the big box transaction that occurred in 2014 according to Real Capital Analytics, a 104% increase when compared to 2013. Private buyers continue to dominate the net lease market in the low cap rate environment as institutions cannot typically pay the cap rate premiums due to yield restrictions. The single tenant net leased big box sector will remain active as both individual and institutional investors seek net leased properties with higher yields. However, with low availability of net lease big box properties market participant expectations are for cap rates to hold steady or decline slightly in 2015.
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THE NET LEASE BIG BOX REPORT FEBRUARY 2015 MEDIAN ASKING CAP RATES BY SQUARE FOOTAGE
MEDIAN ASKING CAP RATE BY LEASE TERM REMAINING
SF Range
Cap Rate
Percentage of Market
Years Remaining
Investment Grade
Non-Investment Grade
Junior Big Box
20,000 - 40,000
6.78%
40%
16-20
5.33%
6.40%
Mid Box
40,000 - 80,000
6.72%
45%
11-15
5.77%
6.57%
15%
6-10
5.90%
7.02%
5 & Under
7.32%
8.03%
Sector
Large Format
Over 80,000
6.48%
BIG BOX MEDIAN ASKING CAP RATE BY REGION 5.75% 7.12% 6.63%
T S EA H T R NO
WEST MOUNTAIN
MIDWEST
SOUTH 6.55% 6.70%
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THE NET LEASE BIG BOX REPORT FEBRUARY 2015 SELECTED SINGLE TENANT BIG BOX CLOSED TRANSACTIONS IN 2014 Sale Date
Tenant
City
State
Price
Price/SF
Cap Rate
Lease Term Remaining
Oct-14
Bass Pro Shops
Dania
FL
$28,130,000
$170
6.25%
8
Oct-14
Lowe's
Shippensburg
PA
$24,366,667
$142
6.05%
16
Oct-14
Gander Mountain
Waukesha
WI
$18,275,353
$294
8.35%
8
Sep-14
Lowe's (GL)
Silverdale
WA
$13,800,000
N/A
4.85%
14
Oct-14
LA Fitness
Goodyear
AZ
$12,000,000
$282
6.80%
15
Nov-14
Petco
Denver
CO
$11,350,000
$492
6.20%
10
Nov-14
LA Fitness
Redlands
CA
$9,150,000
$223
8.00%
5
Oct-14
Garden Ridge
Hilliard
OH
$7,150,000
$55
8.56%
7
Oct-14
Lowe's
Columbus
OH
$6,411,500
$51
8.50%
5
Oct-14
Bed Bath & Beyond
Mishawaka
IN
$5,700,000
$150
7.70%
8
COMPANY COMPARISON Tenant 24 Hour Fitness Academy Sports Bed Bath & Beyond Best Buy BJ's Wholesale Dick's Sporting Goods Gander Mountain Hobby Lobby Kmart Kohl's Kroger La Fitness Lowe's Petco Ross Shopko Sports Authority Sprouts Farmers Market Staples The Home Depot Wal-Mart Whole Foods
Total Number of Stores
Credit Rating
Market Cap
400+ 180+ 1,000+ 1,055 200 558 152 572 1,077 1,158 2,424 600+ 1,750 1,300 1,173 332 460+ 150+ 2,000+ 2,248 11,00+ 387
B Not Rated ABB BNot Rated Not Rated Not Rated CCC+ BBB BBB Not Rated AB ANot Rated BBBBBBA AA BBB-
Private Private $13 B $12 B Private $6 B Private Private $3 B $12 B $32 B Private $66 B Private $19 B Private Private $5 B $11 B $137 B $280 B $18 B
FOR MORE INFORMATION AUTHOR John Feeney | Vice President john@bouldergroup.com
CONTRIBUTORS Randy Blankstein | President randy@bouldergroup.com Jimmy Goodman | Partner jimmy@bouldergroup.com Jordan Kaufman | Vice President jordan@bouldergroup.com Zach Wright | Research Analyst zach@bouldergroup.com
Š 2015. The Boulder Group. Information herein has been obtained from databases owned and maintained by The Boulder Group as well as third party sources. We have not verified the information and we make no guarantee, warranty or representation about it. This information is provided for general illustrative purposes and not for any specific recommendation or purpose nor under any circumstances shall any of the above information be deemed legal advice or counsel. Reliance on this information is at the risk of the reader and The Boulder Group expressly disclaims any liability arising from the use of such information. This information is designed exclusively for use by The Boulder Group clients and cannot be reproduced, retransmitted or distributed without the express written consent of The Boulder Group.
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