Cap rates for retail, office, and industrial properties remained near historic lows in Q2 2013 due to high investor demand. Retail cap rates saw the largest drop, falling 25 basis points to 7%. The supply of properties for sale increased 14% across sectors compared to the previous five quarters. However, most new properties are older buildings or have leases under 10 years. Transaction volume remains high as investors seek opportunities to deploy substantial capital raised, such as acquiring portfolios or properties with shorter leases. Rising interest rates in Q2 increased uncertainty around future cap rates and investor returns.

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THE NET LEASE MARKET REPORT
Q2 2013
NATIONAL ASKING CAP RATES
Sector Q1 2013 Q2 2013 Basis Point
(Previous) (Current) Change
Retail 7.25% 7.00% -25
Office 7.70% 7.54% -16
Industrial 8.02% 8.00% -2
NUMBER OF PROPERTIES ADDED TO
MARKET IN Q2
Sector Q1 2013 Q2 2013 Percent
(Previous) (Current) Change
Retail 2,392 2,760 15.4%
Office 213 258 21.1%
Industrial 216 204 -5.6%
MEDIAN NATIONAL ASKING VS.
CLOSED CAP RATE SPREAD
MARKET OVERVIEW
Cap rates for single tenant properties remained near historic lows for
retail, office and industrial sectors in the second quarter of 2013 due
to the continued high demand for this asset class. Net lease retail and
office cap rates compressed to their lowest levels since 2006 while
industrial cap rates remained at levels similar to the previous quarter.
The compression for retail and office properties is primarily derived
from the low interest rate environment that existed in the first half of
the second quarter. Retail properties remain at the forefront of investor
demand as evidenced by the premium cap rates compared to office and
industrial properties (54 and 100 basis points respectively).
Although cap rates continued to compress in the second quarter, the
overall supply increased 14% across all three sectors for the first time
in the previous five quarters. However, the majority of properties added
to the market are vintage buildings or properties with lease terms
below ten years as owners attempt to take advantage of the low cap
rate environment. Additionally, shopping center owners added supply to
the market by bifurcating single tenant parcels as a significant arbitrage
opportunity exists due to the cap rate differential between single tenant
properties and retail centers.
Transaction volume in the net lease market remains high as equity
fundraising continues at a strong pace. With substantial capital available
and limited opportunities, institutional funds are exploring different
avenues of capital deployment to reach acquisition goals. Different
strategies include acquiring properties with shorter term leases,
properties tenanted by small or non-investment grade companies with
solid financials or bundling large portfolios of properties priced below
$2 million to take advantage of economies of scale. In addition, the
excess capital raised has caused some significant mergers, acquisitions
and large portfolio purchases recently in the net lease market such as
American Realty Capital Trust IV & American Realty Capital Properties’
$4.5 billion buying spree since May or the merger between Cole Credit
Property Trust II and Spirit Realty Capital.
Throughout the second quarter of 2013 the 10 Year Treasury yield
increased by 32%, creating uncertainty in the net lease market.
Increasing rates will cause investor returns to decrease if cap rates
remain unchanged and will create a more challenging fundraising
environment. Cap rates for properties with rental escalations in the
primary lease term will be in the highest demand as a hedge against
inflation will be provided. Rate volatility will sideline many investors in the
near term as price discovery occurs and the impact that future interest
rates will have on the values of net lease properties remains the central
focus for investors.
Sector Q1 2013 Q2 2013 Basis Point
(Previous) (Current) Change
Retail 31 25 -6
Office 81 66 -15
Industrial 46 53 +7

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THE NET LEASE MARKET REPORT
Q2 2013
SELECTED SINGLE TENANT SALES COMPARABLES
Sale
Date Sector Tenant City State Price
Price
Per SF
Cap
Rate
Lease Term
Remaining
Jun-13 Medical Harvard Vanguard Concord MA $24,365,523 $495 6.55% 17
May-13 Retail Home Depot (GL) Plainwell MI $13,389,430 $138 6.15% 13
May-13 Industrial GSA - IRS Ogden UT $12,625,000 $126 8.61% 6
May-13 Retail Walgreens Mounds MN $11,283,333 $779 6.00% 25
Apr-13 Retail Walgreens St. Paul MN $11,205,585 $756 5.77% 25
May-13 Retail LA Fitness Mesa AZ $11,100,000 $193 7.77% 13
May-13 Retail Academy Sports Valdosta GA $9,790,000 $137 7.51% 15
Jun-13 Retail Shopko Sussex WI $9,225,000 $115 8.75% 16
Apr-13 Retail Best Buy Littleton CO $7,300,000 $158 9.70% 9
May-13 Retail Walgreens Indio CA $5,640,000 $389 6.26% 18
May-13 Retail Regions Bank (GL) Coconut Creek FL $5,100,000 -- 5.07% 15
May-13 Industrial FedEx Chilllicothe OH $5,061,862 $116 7.15% 10
NET LEASED CAP RATE TRENDS
8.75%
7.75%
6.75%
7.25%
8.25%
Q4
2005
Q1
2006
Q2
2006
Q3
2006
Q4
2006
Q1
2007
Q2
2007
Q3
2007
Q4
2007
Q1
2008
Q2
2008
Q3
2008
Q4
2008
Q1
2009
Q2
2009
Q3
2009
Q4
2009
Q1
2010
Q2
2010
Q3
2010
Q4
2010
Retail Office Industrial
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Q3
2012
Q4
2012
Q1
2013
Q2
2013

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THE NET LEASE MARKET REPORT
Q2 2013
Tenant 2010-2013 2005-2009 2000-2004 Pre 2000
Walgreens 5.53% 5.96% 6.75% 7.40%
CVS 5.78% 5.88% 7.00% 7.75%
Rite Aid N/A 8.10% 9.00% 9.15%
Advance Auto Parts 6.64% 7.06% 8.50% 8.37%
AutoZone 5.25% 5.83% 6.26% 8.50%
O’Reilly Auto Parts 6.00% 6.50% 7.10% 8.50%
Dollar General 6.85% 8.00% 8.68% 9.25%
Family Dollar 8.00% 8.50% 8.70% 9.00%
McDonald’s 4.00% 4.13% 4.55% 4.75%
FedEx 6.58% 7.25% 7.63% 8.32%
GSA 6.75% 7.50% 7.75% 9.90%
Chase 4.85% 5.17% 5.50% 5.70%
PNC Bank 4.90% 5.25% 5.50% 5.75%
Bank of America 5.10% 5.38% 5.60% 5.75%
Wells Fargo 4.90% 4.98% 5.10% 5.41%
7-Eleven 5.50% 5.85% 6.26% 6.58%
DaVita 6.00% 7.32% 7.95% 9.23%
Fresenius 6.00% 7.65% 8.00% 9.50%
MEDIAN ASKING CAP RATES BY YEAR BUILT
FOR MORE INFORMATION
AUTHOR
John Feeney | Research Director
john@bouldergroup.com
CONTRIBUTORS
Randy Blankstein | President
rblank@bouldergroup.com
Jimmy Goodman | Partner
jimmy@bouldergroup.com
Chad Gans | Research Analyst
chad@bouldergroup.com
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