Net Lease Properties Become a Hot Commodity Due to Low Yields on Alternative Investments

September proved to be a busy month for the single-tenant net lease sector. Within a 24-hour period on Sept. 6, Realty Income Corp., an Escondido, Calif.–based REIT specializing in net lease properties, bought American Realty Capital Trust, which owns 501 mostly net lease buildings, for approximately $2.95 billion; then Lexington Realty Trust, a New York City–based REIT, announced it was acquiring a portfolio of net lease office and industrial properties from its joint venture with Inland American for $480 million.

As Nicholas S. Schorsch, chairman and CEO of American Realty Capital, puts it: “You’ve got an asset class that’s very durable, with no capital expenditures, long-term leases, corporate credit tenants and no operating expenses. So it makes it particularly appetizing as an investment profile. But more importantly, you’ve got interest rates that are historically low right now, so it’s a very good dynamic—you can get very strong returns, while maintaining honest leverage.”

The mega-transactions taking place indicate that institutional investors’ voracious appetites for quality net lease assets have met with a dearth of supply and skyrocketing valuations on one-off deals, says Randy Blankstein, president of the Boulder Group, a Northbrook, Ill.–based real estate services firm focused on the net lease sector.

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