THE NET LEASE BANK GROUND LEASE REPORT MAY 2015 MARKET OVERVIEW
BANK GROUND LEASE PROPERTIES MEDIAN ASKING CAP RATE Q1 2014 (Previous)
Q1 2015 (Current)
Basis Point Change
Bank of America
4.65%
4.40%
-25
Chase
4.50%
4.00%
-50
PNC
4.50%
4.25%
-25
TD Bank
4.35%
4.00%
-35
Other Banks
5.00%
4.75%
-25
All Bank Ground Leases
4.75%
4.35%
-40
Tenant
The above data reflects ground leases with 15 or more lease years remaining.
While overall demand has increased over the past year for net lease properties, the supply of bank ground leases has decreased by 30% since the first quarter of 2014. The shortage can be attributed to the limited retail expansion plans for banking institutions. The lack of new supply has led to increased competition amongst buyers as illustrated by the Median Closed Cap Rate Spread chart. In the past twelve months, the spread between closed and asking cap rates decreased to seventeen basis points. Additionally, there was a 205 basis point premium in cap rates for bank ground leases when compared to the retail net lease market. The overall cap rate compression for this sector can best be attributed to the supply shortage coupled with a high demand for assets with rental escalations and absolute net leases priced between $2 and $5 million.
BANK GROUND LEASE PROPERTIES MEDIAN ASKING PRICE Tenant
Average Price
Bank of America
$4,857,500
Chase
$4,028,749
PNC
$4,125,000
TD Bank
$5,737,500
Other Banks
$2,417,370
All Bank Ground Leases
$3,510,000
Bank ground leases with more than 20 years of lease term remaining are in the highest demand amongst net lease investors. From the first quarter of 2014 to the first quarter of 2015, these ground leases experienced the greatest cap rate compression in this sector (40 basis points). It is rare for a bank ground lease to have a lease with more than 20 years remaining as the vast majority of new leases are for 20 years.
MEDIAN CLOSED CAP RATE SPREAD
Cap rates for the single tenant bank ground lease sector continued their descent to a new historic low of 4.35% in the first quarter of 2015. This signifies a 40 basis point decrease since the first quarter of 2014. Furthermore, this represents the lowest cap rate across all net lease sectors which The Boulder Group tracks. The bank ground lease sector is comprised of both national and regional banks, regardless of credit. Investor demand for bank ground lease properties remains strong as banks are one of the few single tenant net lease properties offering long term absolute net leases and rental escalations in the primary lease terms. Additionally, many private and 1031 investors look to this sector for safe and stable returns, as 90% bank ground leases are leased to investment grade rated companies. This statistic further contributes to the demand and cap rate compression within the sector.
Tenant
Closed
Ask
Spread (bps)
Bank Ground Leases
5.06%
4.89%
17
Investor demand for bank ground leases is expected to remain strong as investors are attracted to the security that this asset class provides. Transaction volume should remain concentrated in properties with long term leases; however shorter term ground leases with strong bank branch deposits will generate significant interest. With a shrinking supply of bank ground leases, competition amongst buyers seeking assets leased to investment grade tenants with rental escalations will continue.
www.bouldergroup.com
THE NET LEASE BANK GROUND LEASE REPORT MAY 2015 SELECTED BANK GROUND LEASE SALES COMPARABLES Sale Date
Tenant
City
State
Dec-14
PNC Bank
Skokie
IL
Sep-14
Chase Bank
Thousand Oaks
Jan-15
PNC Bank
Jan-15
Price
Cap Rate
Lease Term Remaining
$5,600,000
4.38%
20
CA
$4,850,000
3.97%
18
Roswell
GA
$4,810,000
4.78%
20
Wells Fargo
Jacksonville
FL
$2,909,500
5.00%
10
Oct-14
Chase Bank
Jacksonville
FL
$2,640,000
4.35%
20
Nov-14
M&T Bank
Chambersburg
PA
$2,525,000
5.14%
10
Dec-14
Fifth Third Bank
Nashville
TN
$2,290,000
5.77%
14
Sep-14
Bank of America
Lithonia
GA
$2,100,100
5.10%
10
Oct-14
Regions Bank
Orlando
FL
$1,950,000
5.47%
11
Mar-15
TCF Bank
Kenosha
WI
$1,610,000
6.14%
13
Apr-15
US Bank
Bremerton
WA
$1,200,000
4.54%
18
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 Retail
Bank
www.bouldergroup.com
THE NET LEASE BANK GROUND LEASE REPORT MAY 2015 COMPANY COMPARISON Tenant
Total Number of Branches
Credit Rating
Market Cap (Billions)
Associated Bank
225
BBB+
$3
Bank of America
4,800
A-
$163
BB&T
1,824
A-
$28
BMO Harris
1,550
A+
$42
Chase Bank
5,500
A+
$232
Citibank
3,280
A
$160
Fifth Third
1,302
BBB+
$16
Key Bank
994
BBB+
$12
MEDIAN ASKING CAP RATE BY LEASE TERM REMAINING
BANK GROUND LEASE SECTOR VS NET LEASE SECTOR CAP RATE
Lease Term Remaining
Sector
Cap Rate
Q1 2014 (Previous)
Q1 2015 (Current)
20+
4.00%
Bank Ground Lease Sector
4.75%
4.35%
15-19
4.45%
Retail Net Lease Market
6.75%
6.40%
10-14
4.70%
Bank Ground Lease Premium (bps)
200
205
Under 10
5.45%
FOR MORE INFORMATION AUTHOR John Feeney | Vice President john@bouldergroup.com
CONTRIBUTORS Randy Blankstein | President
Jimmy Goodman | Partner
Zach Wright | Research Analyst
randy@bouldergroup.com
jimmy@bouldergroup.com
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.
www.bouldergroup.com