THE NET LEASE BANK GROUND LEASE REPORT BANK GROUND LEASE PROPERTIES MEDIAN ASKING CAP RATE
MARKET OVERVIEW
Q1 2018 (Previous)
Q1 2019 (Current)
Basis Point Change
Bank of America
4.53%
4.50%
-3
Chase Bank
5.00%
5.00%
0
PNC Bank
4.50%
4.55%
+5
TD Bank
4.95%
5.35%
+40
Other Banks
4.84%
5.15%
+31
All Bank Ground Leases
4.63%
4.84%
+21
Tenant
The above data reflects bank ground leases with 12 or more lease years remaining.
BANK GROUND LEASE PROPERTIES MEDIAN ASKING PRICE Tenant
Average Price
Bank of America
$4,070,000
Chase Bank
$4,280,000
PNC Bank
$2,528,900
TD Bank
$6,306,000
Other Banks
$3,235,400
All Bank Ground Leases
$3,850,000
The above data reflects bank ground leases with 12 or more lease years remaining.
MEDIAN ASKING CAP RATE BY LEASE TERM REMAINING Lease Term Remaining
Cap Rate
20+
4.78%
15-19
5.03%
10-14
5.27%
Under 10
5.75%
2019
Q1
Cap rates for the single tenant bank ground lease sector increased by 46 basis points to 5.30% in the first quarter of 2019 compared to one year ago. In the past two years, cap rates in the bank ground lease sector increased by more than 65 basis points while net lease retail cap rates increased by only 8 basis points. For the purpose of this report, the bank ground lease sector is comprised of both national and regional banks, regardless of credit. Transaction volume for single tenant bank branches decreased by more than 9% in 2018 when compared to 2017. This can be primarily attributed to the concern among investors regarding the future need of brick and mortar banking facilities. Additional concerns from investors include high rents that are typically above their current submarket levels and difficult to repurpose buildings. Bank branch expansion remains limited, causing the supply of properties to be saturated with seasoned leases. The median remaining lease term for bank ground leases dropped below 10 years for the first time since The Boulder Group began covering the bank ground lease sector. The typical bank ground lease investor prefers longer term leases which in turn has lowered the demand for this asset class due to the current supply of shorter-term leases. Accordingly, the significant cap rate premium historically associated with the bank ground lease sector compressed to 97 basis points. Five years ago, the bank ground lease sector regularly saw a 200 plus basis point premium over the net lease retail sector. Investor demand for bank ground leases will remain fragmented. Some will be seeking assets with long term leases, strong branch deposits and a lease with a tier one financial institutions. While others will be focused on residual real estate with in-place rents comparable to the surrounding area. However, the expectation is that interest in bank ground leases will remain lower than other net lease investment classes.
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THE NET LEASE BANK GROUND LEASE REPORT
2019
Q1
SELECTED BANK GROUND LEASE SALES COMPARABLES Sale Date
Tenant
City
State
Price
Cap Rate
Lease Term Remaining
Feb-19
Wells Fargo (GL)
District Heights
MD
$3,900,000
6.43%
9
Apr-19
TCF Bank (GL)
Richfield
MN
$2,925,000
6.25%
9
Mar-19
Bank of America (GL)
Henderson
NV
$2,218,000
6.00%
6
Feb-19
SunTrust (GL)
Purcellville
VA
$7,000,000
5.50%
14
Sep-18
Bank of America (GL)
Richmond
TX
$2,800,000
5.50%
10
Jul-18
Wells Fargo (GL)
Phoenix
AZ
$6,225,000
5.40%
9
Jul-18
Capital One (GL)
Keller
TX
$2,837,500
5.29%
12
Mar-19
Chase Bank (GL)
Wylie
TX
$3,085,000
5.10%
8
Oct-18
Regions Bank (GL)
Missouri City
TX
$2,983,690
4.77%
20
BANK GROUND LEASE VS RETAIL NET LEASE CAP RATE TRENDS 8.60% 8.10% 7.60% 7.10% 6.60% 6.10% 5.60% 5.10% 4.60% 4.10%
Q1 2004
Q1 2006
Q1 2008
Q1 2010
Q1 2012
Q1 2014
Q1 2016
Q1 2018 Retail
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Bank
THE NET LEASE BANK GROUND LEASE REPORT
2019
Q1
COMPANY COMPARISON Total Number of Branches
Credit Rating
Market Cap (Billions)
Associated Bank
230
BBB+
$3.7
Bank of America
4,600
A-
$287.3
BB&T
1,800
A-
$37.8
BMO Harris
600
A+
$50.5
Chase Bank
5,100
A+
$368.4
Citibank
2,649
BBB+
$161.1
Fifth Third
1,312
A-
$21.2
Tenant
KeyBank
1,197
BBB+
$17.0
PNC Bank
2,481
A
$60.2
Regions Bank
1,899
A-
$15.4
425
BBB-
$3.6
TD Bank
TCF Bank
1,301
AA-
$104.0
US Bank
3,067
A+
$81.9
Wells Fargo
8,050
A-
$214.7
MEDIAN CLOSED CAP RATE SPREAD Tenant
Closed
Ask
Spread (bps)
Bank Ground Leases
5.19%
4.84%
35
The above data reflects bank ground leases with 12 or more lease years remaining.
BANK GROUND LEASE SECTOR VS NET LEASE SECTOR CAP RATE Q1 2018 (Previous)
Q1 2019 (Current)
Bank Ground Lease Sector
4.84%
5.30%
Retail Net Lease Market
6.10%
6.27%
+126
+97
Tenant
Bank Ground Lease Premium (bps)
FOR MORE INFORMATION AUTHOR John Feeney | Senior Vice President john@bouldergroup.com
CONTRIBUTORS Randy Blankstein | President
Jimmy Goodman | Partner
randy@bouldergroup.com
jimmy@bouldergroup.com
Scott Harris | Vice President
Jeff Weil | Vice President
scott@bouldergroup.com
jeff@bouldergroup.com
© 2019. 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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