Multifamily, net lease retail properties likely to stay hot through 2022

Multifamily and net lease retail properties have garnered more interest from investment firms in recent months due to pandemic concerns, and their popularity may stick through 2022.

These types of properties are typically seen as safer investments, especially during an uncertain economic time like now, than office and retail spaces.

While a steady stream of national firms purchasing local multifamily properties isn’t new, Wesley Moore of Cook, Moore, Davenport and Associates says he’s seeing more aggressive acquisitions in the Baton Rouge area.

What has been unusual in multifamily deals, he says, is cap rate compression, meaning that for the same amount of income, buyers are paying more. There’s a multitude of reasons for this, he says, including lower borrowing costs and greater competition to buy solid investments.

Another class of properties that has seen compression locally is net lease retail real estate, he says, and firms are buying properties net leased to businesses such as CVS and Dollar General. For example, last week in Baton Rouge a California-based investment firm purchased a Dollar General on Old Scenic Highway. 

Net lease properties include agreements where occupants pay rent and a part of the property’s taxes and insurance fees, instead of just rent.

The income on those properties doesn’t change, but the values have been rising materially, he says, “partly because they’re a safe haven, almost like a corporate bond with real estate backing.”

Other investment spaces such as big offices haven’t spurred as much activity, Moore says, because they have a different risk profile, with buyers questioning whether users will need or want that much space in the future.

On the other hand, smaller, garden-style offices have done well because of their size as well as being more spread out, Moore says.

Multifamily and net lease properties are likely to stay popular through 2022, Moore says, something he attributes to the huge amount of cash floating around.
“When you get more dollars competing for those various instruments in which they can be invested,” he says, “there’s greater competition for the same number of deals.”