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Investors Gravitate to Net Lease

New competitors have entered the space and are bidding on assets.

Greater capital allocations from net lease investors, both institutional and private, coupled with capital from market participants, have created all-time high liquidity, according to Alex Sharrin, managing director, capital markets at JLL.

“It’s important to note that dry powder for U.S. commercial real estate exceeds $200 billion as many institutions seek alternatives to low-yielding fixed-income investments,” he explained. “Family office, offshore capital, and targeted separate accounts rising in prominence have also shaped
the landscape.”

In a new question for this year’s survey, WMRE asked respondents to identify sources of new competition when acquiring net lease assets. In all, 47 percent of participants in the WMRE survey said they are seeing new faces in the market. Among those respondents, nearly eight out of 10 respondents (78 percent) identified private real estate investors as new competition, while 67 percent said 1031 buyers/individuals/high-net-worth (HNW) investors were seeking deals, 58  percent named institutional investors and 32 percent pointed to international investors.

Private investors had the largest share of net lease investment in the fourth quarter of 2020 at $10.9 billion, an increase of 78.5 percent from the third quarter, according to CBRE. The firm estimated that institutions and equity funds increased their net lease investment volume by 138 percent from the third quarter to just over $9 billion in the fourth quarter.

Meanwhile, REIT-related net lease investment volume increased by 68 percent quarter-over-quarter to $3.3 billion, according to CBRE. And foreign investments reached a high for the year in fourth quarter, increasing a whopping 336 percent quarter-over-quarter to $3.8 billion.

W.P. Carey is coming up against the same competitors it usually does—public and private net lease REITs and private equity funds, according to Sabatini. However, he has noticed a mix of other investors swooping in for deals that W.P. Carey considers to be less attractive such as those with shorter lease terms. Those buyers include foreign investors, high-net-worth investors and institutional investors.