During the past three-to-four years, the triple-net retail sector was characterized as busy, made up, as it was, of aggressive buyers and compressing cap rates.

Then things changed in 2017, with buyers, apparently, gearing up to slow down.

“It’s more difficult to get deals closed these days,” said Jereme Snyder, executive vice president, Colliers International’s Irvine, CA office and a partner with the Colliers NNN Group. “Buyers are being more cautious.” The reasons for the caution, he added, encompass everything from anticipation of a downturn in the next few years, to concerns over presidential administration policies – to the Federal Reserve’s increase of the discount interest rate.

“The rate bumps haven’t done a lot to the lending market,” Snyder observed, “but they have been messing with the investor psyche.”

Investors, however, still like the triple-net property concept, and are still buying properties, fast-food restaurants, in fact, continue to be popular. “This has been a stable property for buyers,” said Eric Carlton, senior vice president with the Colliers NNN Group. “There is a lot of perception that fast-food is more recession-proof, that the ebbs and flows of the economy won’t impact it.”

Carlton and Snyder indicated two types of buyers in the product; private and institutional investors. The private buyers consist of high net-worth individuals who might be on the verge of retirement, and who might be interested in exchanging out of another real estate class into the hands-off triple-net type. “This buyer wants a coupon-clipper type of income,” Carlton said. “They chase term and credit, and live off the passive income.”

Both private and institutional buyers also want credit tenants, with long-term leases. Additionally, “they want good markets with strong demographics. A lot are being careful to avoid too much exposure, too,” Snyder noted. Institutional buyers are investing in fewer drug stores, banks and dollar stores, he continued.

From a geographic perspective, Carlton pointed out that the West Coast is ideal, though somewhat pricey. Florida and Texas also come up in conversations, due to no state income tax. “People are looking for assets in major metros,” Snyder added. “The further you get into the suburbs and secondary markets, the less viable they become.”

Investment activity isn’t likely to change much for the rest of the year and into 2018, though Carlton indicates a slight cap rate increase. Snyder agreed, adding that an increase would likely be restricted to secondary and tertiary assets.

For comments, questions or concerns, please contact Amy Sorter