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Net Lease Bank Properties

Cap Rates for Net Lease Bank Properties Compress

Date June 7, 2021

Cap Rates for Single Tenant Net Lease Bank Properties Compress;
Despite retail bank headwinds, The Boulder Group cites tenant credit and low interest rate as the primary reasons

The Boulder Group announced the release of its Net Lease Bank Properties Ground Lease Report today. In the first quarter national asking cap rates in the single tenant bank ground lease sector decreased to 5.35%, according to the 2021 Net Lease Bank Ground Lease Report. This represented a 12 basis point decrease when compared to the prior year.

“The cap rate compression associated with the banking sector can be best attributed to the investment grade credit of the tenants and the low interest rate environment” says Randy Blankstein, President, The Boulder Group.

In the first quarter of 2021, bank properties with leases in excess of 18 years commanded cap rates of 4.30%, a 10 basis point decrease from the prior year. Bank properties with the longest leases typically display attractive traits including relocation branches and modern prototypes.
“Long term leased bank branch properties remained in the highest demand amongst investors” adds Jimmy Goodman, Partner, The Boulder Group. “Consequently, these properties experienced the greatest amount of compression in the sector.”

Investors targeting properties in the bank sector are cognizant of the everchanging banking environment related to mobile banking and the evolving branch footprints. Accordingly, as banks implement their modern footprints and mobile banking strategies, bank branch closings have become more common. According to the FDIC, the number of bank branch closings surpassed the number of bank branch openings for each of the past 11 years.

“With negative net branch openings throughout the years, the supply of bank ground leases is heavily concentrated with short term leases” John Feeney, Senior Vice President, The Boulder Group adds. “For the third consecutive year, the median term remaining for the bank ground lease sector was below 10 years.”

Net lease investors will continue to monitor the bank sector following the Covid-19 environment which temporarily closed many bank branches aside from drive-thrus. Regardless of the investor class, bank branch deposits, in-place rental rates and physical real estate locations will be top of mind for investors. “Long term leases will garner the lowest cap rates in the sector” according to Blankstein. “However, short term leases with strong underlying real estate fundamentals will be in demand amongst certain investors who are willing to take on more risk through potential re-tenanting or redevelopment of a property.”

To view the full report: https://bouldergroup.com/media/pdf/Net-Lease-Bank-Ground-Lease-Report.pdf

About The Boulder Group

The Boulder Group is a boutique, Chicago-based investment real estate services firm specializing in transaction and advisory services for single tenant net lease properties. Founded in 1997, the firm has closed over $6 billion of net lease property transactions. The firm provides a full range of brokerage, research, advisory, and financing services nationwide. The level of annual, single-tenant transaction volume consistently ranks the firm in the top 10 companies nationally, according to industry benchmarks determined by CoStar and Real Capital Analytics.