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NET LEASED INVESTMENTS Jonathan Hipp,  President & CEO David Sobelman,  Executive Vice President   Rick Fernandez,   Assis...
Discussion Topics <ul><li>Net Lease Structure </li></ul><ul><li>Elements of Net Lease Investing </li></ul><ul><li>Market U...
Net Lease Structure <ul><li>Tenant Negotiates Lease with  Developer/Landlord </li></ul><ul><li>Lease Provides for Landlord...
Elements of Net Lease Investing <ul><li>Return On Investment Tied to a Few Main Factors: </li></ul><ul><li>Intrinsic Real ...
Market Update <ul><li>Going to a  “Back to Basics”  Investment Ideology </li></ul><ul><ul><li>Intrinsic Real Estate Value ...
Washington Metro Market Update on Net Leases <ul><li>Trends in the Washington, DC Metropolitan Area </li></ul><ul><li>Demo...
Top 10 Annual Growth Areas By Percentage Change Source: Claritas, Inc. 17 18 Tampa, FL  8 8 13 6 San Diego, CA  17 8 43 41...
Top 10 Annual Growth Areas By Absolute Change Source: Claritas, Inc. 15 17 Houston, TX  11 10 2 2 Las Vegas, NV  8 9 20 22...
Average Household Income Growth Top 10 Markets Source: Claritas, Inc. IRR CMSA Average 1.94 1.81 IRR Top 10 Average 2.37 2...
Market Update on Net Leases  <ul><li>Trends in the US  </li></ul><ul><li>Demographic Influences </li></ul><ul><ul><li>Unem...
Due Diligence <ul><li>Why is One CVS Pharmacy Better Than Another? </li></ul><ul><li>Surrounding Area </li></ul><ul><li>De...
CVS/ pharmacy SAVE•A•LOT
 
 
<ul><li>Politics of Economy and Future Economy </li></ul><ul><ul><li>1031 Exchange Timing and Capital Gains Rate </li></ul...
Historical Rate Comparison Source:  Cap Rates from Real Capital Analytics United States Federal Reserve
CMBS Rates Source:  United States Federal Reserve
Investment Sales Still Up
Historical Net Lease Sales
<ul><li>Overview of Credit and Default Rates </li></ul>A company rated A- by S&P (equivalent to an A3 Moody’s rating) has ...
Tenant Overview CVS/pharmacy BBB+ Starbucks A 7-Eleven S&P CREDIT COMPANY BBB+ Colonial Bank A McDonalds A+ PNC A+ Walgree...
<ul><li>Common Holdings of Assets </li></ul><ul><ul><li>Land </li></ul></ul><ul><ul><li>Multi Family </li></ul></ul><ul><u...
<ul><li>Calkain Companies, Inc. </li></ul><ul><li>11150 Sunset Hills Road Suite 300 </li></ul><ul><li>Reston, VA 20190 </l...
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Net lease Investments

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Calkain Companies, Inc. where triple net lease properties are the focus of our business. Working through the net lease investment process with our clients is the basis and foundation our firm.

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  • Greeting and overview of what will occur during the talk.
  • Discuss the topics that will be covered throughout the talk.
  • -Overview of how a net lease is structured -Discuss the process of how a property becomes income producing -Difference between NN and NNN and why that may be the case.
  • Can discuss the amalgamation of credit vs. real estate An overview of a true NNN lease Benefits of a strong (bond-like) lease What attributes are most attractive to an investor
  • Need to change per the market Have a good understanding of demographic trends Statistics are vital!!! Possibly narrow things down to a county level.
  • Explain that” this is the largest part of the discussion” Have strong understanding of: 10 year T, Fed Funds Rate, outlook of economy, Bernanke trends, that have been stated Capital Gains rate most likely to go up because of Democratic control of the House and Senate. That can occur in 2010 or earlier Currently the 15% is the lowest rate since the rate’s inception in the 1930’s
  • Trends of ALL retail CAP rates over last 4 years 30 year mortgage Fed Funds Rate 10 year Treasury The point of this is to show that there used to be a large spread between the rates and there is currently a lot of compression, especially between the 10 year and CAP rates.
  • CMBS = Commercial Mortgage Backed Securities = Conduit Loans There is about 100 basis points between 10 year and AAA credit loans There is about 200 basis points between 10 year and BBB credit loans
  • Show the difference between investment grade and junk credit Reference the amalgamation of credit vs. real estate, etc. Emphasize that investment grade credit default rates are essentially the same throughout
  • Need to alter to the audience If Developer – try to find out the tenants they work with If law firm/CPA – use as an example of different tenants and credits
  • Overview of 1031 process What properties to investors exchange from? Estate Planning concept/benefits Introduction of the asset class is the primary topic
  • Different per presenter
  • Transcript of "Net lease Investments"

    1. 1. NET LEASED INVESTMENTS Jonathan Hipp, President & CEO David Sobelman, Executive Vice President Rick Fernandez, Assistant Vice President
    2. 2. Discussion Topics <ul><li>Net Lease Structure </li></ul><ul><li>Elements of Net Lease Investing </li></ul><ul><li>Market Update </li></ul><ul><li>Due Diligence </li></ul><ul><li>CAP Rates vs. Interest Rates </li></ul><ul><li>Net Lease Planning as a Strategic Investment Tool </li></ul>
    3. 3. Net Lease Structure <ul><li>Tenant Negotiates Lease with Developer/Landlord </li></ul><ul><li>Lease Provides for Landlord and Tenant Responsibilities </li></ul><ul><li>Variations on Lease Terms and Intricacies </li></ul>
    4. 4. Elements of Net Lease Investing <ul><li>Return On Investment Tied to a Few Main Factors: </li></ul><ul><li>Intrinsic Real Estate Value </li></ul><ul><ul><li>Single Tenant, Multi-Tenant (Wrapped in a Single Tenant Net Lease Structure) </li></ul></ul><ul><ul><li>Land, Vacant Building, Construction Costs, Barriers to Entry </li></ul></ul><ul><li>Tenant’s Credit </li></ul><ul><ul><li>Current Financial Snapshot </li></ul></ul><ul><ul><li>Future Financial Outlook </li></ul></ul><ul><ul><li>Previous Year’s Reporting </li></ul></ul><ul><ul><li>Tenant’s Lease </li></ul></ul><ul><li>Landlord Responsibilities </li></ul><ul><ul><li>Varying Degrees of Landlord Responsibility for Property Related Expenses </li></ul></ul><ul><ul><li>Truly Passive? </li></ul></ul><ul><ul><li>Long Term Leases </li></ul></ul><ul><ul><li>Bond-Like Investments </li></ul></ul><ul><ul><li>Rental Increases in the Lease </li></ul></ul>
    5. 5. Market Update <ul><li>Going to a “Back to Basics” Investment Ideology </li></ul><ul><ul><li>Intrinsic Real Estate Value </li></ul></ul><ul><ul><li>Strong Tenancy </li></ul></ul><ul><ul><li>Spread Better </li></ul></ul><ul><ul><li>Passivity </li></ul></ul><ul><ul><li>Real Estate as Backstop of a Bond-Like Investment </li></ul></ul>
    6. 6. Washington Metro Market Update on Net Leases <ul><li>Trends in the Washington, DC Metropolitan Area </li></ul><ul><li>Demographic Influences </li></ul><ul><ul><li>Unemployment Rate </li></ul></ul><ul><ul><li>Population Growth </li></ul></ul>1.17% 0.61% 0.68% 2007-2012 Ann. Rate 4,797,200 1,941,803 713,268 2012 Total Pop. 4,525,069 1,883,676 689,502 2007 Total Pop. 25 miles 10 miles 5 miles Population Growth Estimate 4.8% 6.4% 6.8% Unemployed 95.2% 93.6% 93.2% Employed 25 miles 10 miles 5 miles 2012 Civilian Population 16+ in Labor Force 2007 Civilian Population Aged 16+ in Labor Force 5.2% 6.8% 7.2% Unemployed 94.8% 93.2% 92.8% Employed 25 miles 10 miles 5 miles
    7. 7. Top 10 Annual Growth Areas By Percentage Change Source: Claritas, Inc. 17 18 Tampa, FL 8 8 13 6 San Diego, CA 17 8 43 41 Boise, ID 11 8 41 37 Naples, FL 5 7 1 1 Washington, DC – VA – MD – WV 6 6 19 19 Jacksonville, FL 7 5 4 5 Sacramento, CA 3 4 3 4 Phoenix, AZ 4 3 8 9 Las Vegas, NV 2 2 2 2 Riverside, CA 1 1 00-07 Rank 07-12 Rank CMSA 00-07 Rank 07-12 Rank Absolute Annual Growth Annual Growth Rate
    8. 8. Top 10 Annual Growth Areas By Absolute Change Source: Claritas, Inc. 15 17 Houston, TX 11 10 2 2 Las Vegas, NV 8 9 20 22 Dallas – Fort Worth, TX 4 8 22 21 Atlanta, GA 9 7 17 8 San Diego, CA 13 6 3 4 Sacramento, CA 4 5 4 3 Phoenix, AZ 3 4 42 36 Los Angeles, CA 4 3 1 1 Riverside, CA 2 2 6 6 Washington, DC – VA – MD – WV 1 1 00-07 Rank 07-12 Rank CMSA 00-07 Rank 07-12 Rank Absolute Annual Growth Annual Growth Rate
    9. 9. Average Household Income Growth Top 10 Markets Source: Claritas, Inc. IRR CMSA Average 1.94 1.81 IRR Top 10 Average 2.37 2.19 1,186.20 12 Richmond, VA 2.26 10 2.07 10 1,235.20 9 Philadelphia, PA-NJ-DE-MD 2.17 12 2.07 9 1,223.20 11 Sacramento, CA 2.34 8 2.11 8 1,137.40 14 Providence, RI – MA 2.32 9 2.12 7 789.4 54 Morgantown, WV 2.41 5 2.19 6 1,068.20 17 Birmingham, AL 2.42 4 2.21 5 1,421.80 2 Baltimore, MD 2.37 6 2.26 4 1,374.00 3 San Diego, CA 2.47 3 2.29 3 1,259.20 6 Virginia Beach, VA – NC 2.56 2 2.29 2 1,878.40 1 Washington, DC-VA-MD-WV 2.34 7 2.34 1 07-12 ($’s) 07-12 Rank CMSA 99-07 (%) 99-07 Rank 07-12 (%) 07-12 Rank Absolute Annual Growth Annual Growth Rate
    10. 10. Market Update on Net Leases <ul><li>Trends in the US </li></ul><ul><li>Demographic Influences </li></ul><ul><ul><li>Unemployment Rate Unchanged (4.6%) </li></ul></ul><ul><ul><li>Population Growth </li></ul></ul><ul><ul><ul><li>7.2% Increase Over 7 Years </li></ul></ul></ul><ul><ul><ul><li>Northwest 2% </li></ul></ul></ul><ul><ul><ul><li>South/West 10% </li></ul></ul></ul>
    11. 11. Due Diligence <ul><li>Why is One CVS Pharmacy Better Than Another? </li></ul><ul><li>Surrounding Area </li></ul><ul><li>Development Planned </li></ul><ul><li>What Does Master Plan Currently Read? </li></ul><ul><li>What are the Current and Future Demographics Trends? </li></ul><ul><li>Example: Winn Dixie </li></ul><ul><li>Poor Demographics </li></ul><ul><li>Excellent Site </li></ul>
    12. 12. CVS/ pharmacy SAVE•A•LOT
    13. 15. <ul><li>Politics of Economy and Future Economy </li></ul><ul><ul><li>1031 Exchange Timing and Capital Gains Rate </li></ul></ul><ul><ul><ul><li>2010 </li></ul></ul></ul><ul><ul><ul><li>Democrats </li></ul></ul></ul><ul><ul><ul><li>Republicans </li></ul></ul></ul>CAP Rates vs. Interest Rates
    14. 16. Historical Rate Comparison Source: Cap Rates from Real Capital Analytics United States Federal Reserve
    15. 17. CMBS Rates Source: United States Federal Reserve
    16. 18. Investment Sales Still Up
    17. 19. Historical Net Lease Sales
    18. 20. <ul><li>Overview of Credit and Default Rates </li></ul>A company rated A- by S&P (equivalent to an A3 Moody’s rating) has a 0.60% probability of defaulting over a five-year period. By comparison, a company rated B+ by S&P (equivalent to a B1 Moody’s rating) has a 25% probability of defaulting over the same period. Source: Moody’s Over a five-year period, what portion of a rated entity or investment is expected to default? 60.00% Caa-C CCC 43.00% B3 B- 31.00% B2 B 25.00% B1 B+ 19.00% Ba3 BB- 9.00% Ba2 BB PROBABILITY OF DEFAULT (5 YEARS) MOODY’S S&P 7.00% Ba1 BB+ 4.00% Baa3 BBB- 2.00% Baa2 BBB 1.50% Baa1 BBB+ 0.60% A3 A- 0.60% A2 A 0.40% A1 A+ 0.20% Aa3 AA- 0.20% Aa2 AA 0.15% Aa1 AA+ 0.15% Aaa AAA
    19. 21. Tenant Overview CVS/pharmacy BBB+ Starbucks A 7-Eleven S&P CREDIT COMPANY BBB+ Colonial Bank A McDonalds A+ PNC A+ Walgreens A+ Commerce Bank AA+ Citibank S&P CREDIT COMPANY NR Applebee’s NR Wawa B Rite Aid BB- Burger King BB+ Advance Auto BBB+ AutoZone BBB+ CVS
    20. 22. <ul><li>Common Holdings of Assets </li></ul><ul><ul><li>Land </li></ul></ul><ul><ul><li>Multi Family </li></ul></ul><ul><ul><li>Multi Tenant Retail, Office or Industrial </li></ul></ul><ul><li>Estate Planning </li></ul><ul><ul><li>Long Term </li></ul></ul><ul><ul><li>Less Complicated Investment for Heirs </li></ul></ul><ul><ul><li>Less Management for Heirs </li></ul></ul><ul><li>Portfolio Diversification </li></ul><ul><ul><li>Looking to Blend Their Yields with Lower Risk Investments </li></ul></ul><ul><ul><ul><li>Typically More Stabilized Assets </li></ul></ul></ul><ul><ul><ul><li>Typically a Little Lower Return </li></ul></ul></ul><ul><ul><ul><li>Typically Little or No Management </li></ul></ul></ul>Net Lease Planning as a Strategic Investment Tool
    21. 23. <ul><li>Calkain Companies, Inc. </li></ul><ul><li>11150 Sunset Hills Road Suite 300 </li></ul><ul><li>Reston, VA 20190 </li></ul><ul><li>Tel: (703) 787-4714 </li></ul><ul><li>Fax: (703) 787-4783 </li></ul><ul><li>www.calkain.com </li></ul>Rick Fernandez Business Development Director (703) 787-4732 [email_address] David Sobelman Vice President (813) 282-6000 [email_address] Jonathan Hipp President & Chief Executive Officer (703) 787-4725 [email_address]
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