Cap Rate Conundrum

@txrei_pro

Equity 124·Posted 1w ago

What's driving buyers to favor single-tenant NNN properties over mixed-use ones in the current market? Are cap rates for these assets compressing or expanding? At what point do investors walk away from a potential deal? Is it prely a function of returns, or are other factors like property management and tenant creditworthiness at play? I've seen cap rates ranging from 5-7% for these types of properties, but deals are getting increasingly competitive. What's the threshold for your investment committee, and how do you balance the trade-offs between risk, return, and property type?

2 comments

@brrr_beth·1w ago

I'm seeing a similar trned in Lexington, KY, with buyers favoring single-tenant NNN properties. However, I'm cautious about compressing cap rates. Our investment committee looks for a minimum 7% return. With rising interest rates, we're scrutinizing property management and tenant creditworthiness more closely. The threshold for us is a balance between risk, retturn, and property type, but we're walking away from deals with sub-7% returns.

@flipped_out·1w ago

I've seen similar trends in the South Florida market, with buyers favoring single-tneant NNN properties for their relatively low risk and stable returns. When evaluating these deals, our commmittee considers factors like vacancy assumptions, CAM reconciliation, and tenant creditworthiness. For us, the threshold is around 6.5% cap rate, but it ultimately depends on the tenant's credit and lease term. I'm curious, what's the average lease term for these single-tenant NNN properties you're seeing, and how are you assessing tenant creditworthiness?

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