Net lease-bank-ground-lease-research-report
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Net lease-bank-ground-lease-research-report Net lease-bank-ground-lease-research-report Document Transcript

  • www.bouldergroup.com THE NET LEASE BANK GROUND LEASE REPORT MAY 2014 BANK GROUND LEASE PROPERTIES MEDIAN ASKING CAP RATES Q1 2013 Q1 2014 Basis Point Tenant (Previous) (Current) Change Bank of America 5.30% 4.65% -65 Chase 5.00% 4.50% -50 PNC 5.25% 4.50% -75 TD Bank 5.00% 4.35% -65 Other Banks 5.28% 5.00% -28 All Bank Ground Leases 5.00% 4.75% -25 BANK GROUND LEASE PROPERTIES MEDIAN ASKING PRICE MARKET OVERVIEW Cap rates within the single tenant bank ground lease sector reached their historic low after compressing by 25 basis points from the first quarter of 2013 to the first quarter of 2014. The sector is composed of both national and regional banks, regardless of credit. Overall asking cap rates for the bank ground lease sector were 4.75%, representing the lowest cap rate across all net lease sectors which The Boulder Group currently tracks. Investor demand for bank ground lease properties remains strong as banks are one of the few single tenant net lease options with long term leases and rental escalations in the primary terms. In addition, 95% of the bank ground leases in the market have an investment grade rating, further contributing to their appeal and low cap rates. The cap rate compression experienced can be primarily attributed to the lack of new construction properties available throughout the market coupled with a high demand for this asset type. Investor demand is best quantified by the closed cap rate spread of 23 basis points which decreased by 10 basis points over the past year. The primary challenge facing buyers of bank ground lease properties remains the scarcity of product. Bank properties constructed in the past two years only made up 16% of the market in the first quarter of 2014, a 6% decrease when compared to a year ago. A contributing factor to the lack of new construction supply is that some bank tenants prefer to own their real estate rather than engage in a long termlease.Newconstructionpropertieswithlongtermgroundleases are in the highest demand amongst 1031 exchange investors and private buyers as they offer long term leases to investment grade tenants with historically low lease default rates. Accordingly, bank ground leases with twenty or more years of lease term remaining experienced the greatest compression of 52 basis points in the past twelve months. Investor demand for bank ground leases is expected to remain active as investors continue to seek this asset type. Primary demand will remain concentrated in properties with long term leases; but with cap rates at historic lows expect some investors to expand their criteria to include shorter term ground leases with quality real estate and above average branch deposits. The bank ground lease sector will continue to command a premium to the net lease retail market as individual investors seek investment grade tenanted properties. However, with a lack of new bank properties the expectation is that competition amongst investors for this asset type will continue to increase. Tenant Average Price Bank of America $3,872,500 Chase $3,652,500 PNC $5,000,000 TD Bank $5,295,000 Other Banks $3,200,000 All Bank Ground Leases $3,652,500 Sector Closed Asking Spread (bps) Bank Ground Lease 5.23% 5.00% 23 MEDIAN NATIONAL CLOSED CAP RATE SPREAD The above data reflects ground leases with 15 or more lease years remaining.
  • www.bouldergroup.com THE NET LEASE BANK GROUND LEASE REPORT MAY 2014 SELECTED BANK GROUND LEASE SALES COMPARABLES BANK GROUND LEASE VS RETAIL NET LEASE CAP RATE TRENDS Sale Date Tenant City State Price Cap Rate Lease Term Remaining Mar-14 TD Bank Gaithersburg MD $6,704,761 5.25% 13 Feb-14 Chase Bank Plainfield IL $4,775,000 5.23% 25 Feb-14 Regions Bank Maitland FL $3,986,000 5.69% 12 Dec-13 Wells Fargo Houston TX $3,940,000 5.43% 13 Feb-14 PNC Bank Melbourne FL $3,362,500 4.57% 25 Aug-13 BBVA Kingwood TX $3,025,000 5.45% 14 Feb-14 Bank Of America Elgin IL $2,975,000 6.70% 9 Oct-13 Chase Bank Schiller Park IL $2,740,000 5.00% 20 Apr-14 PNC Bank Brookfield WI $2,400,000 5.21% 19 Sep-13 Chase Bank Colorado Springs CO $2,400,000 4.79% 18 Jul-13 Regions Bank Tampa FL $1,540,000 6.15% 11 Retail Bank Q1 2004 Q1 2006 Q1 2008 Q1 2010 Q1 2012 Q1 2014 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00% 8.50%
  • www.bouldergroup.com THE NET LEASE BANK GROUND LEASE REPORT MAY 2014 Bank Total Number of Branches Credit Rating Market Cap (Billions) Bank of America 5,100 A- $168 BB&T 1,825 A- $26 BMO Harris 1,570 A+ $44 Chase Bank 5,600 A+ $210 Citibank 3,729 A- $145 Fifth Third 1,313 BBB+ $17 Key Bank 1,028 BBB+ $11 PNC Bank 2,714 A $44 Regions Bank 1,705 BBB- $14 TCF Bank 427 BBB- $2 TD Bank 1,179 AA- $86 US Bank 3,081 A+ $73 Wells Fargo 9,000 A+ $258 COMPANY COMPARISON FOR MORE INFORMATION AUTHOR John Feeney | Research Director john@bouldergroup.com CONTRIBUTORS Randy Blankstein | President rblank@bouldergroup.com Jimmy Goodman | Partner jimmy@bouldergroup.com Zach Wright | Research Analyst zach@bouldergroup.com © 2014. 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. MEDIAN ASKING CAP RATE BY LEASE TERM REMAINING Lease Term Remaining Cap Rate 20+ 4.48% 15-19 4.75% 10-14 5.05% Under 10 5.35% BANK GROUND LEASE SECTOR VS NET LEASE SECTOR CAP RATE Q1 2013 Q1 2014 Sector (Previous) (Current) Bank Ground Lease 5.00% 4.75% Retail Net Lease Market 7.25% 6.75% Bank Ground Lease Premium (bpm) 225 200