Net Lease Capital Markets Update — December 2023

Here’s our December 2023 snapshot of the net lease capital markets — covering interest rates, single-tenant NNN activity, life company lending, and bridge financing options.

Interest Rates

The 10-year Treasury yield saw significant volatility, briefly touching 5% in mid-October before declining to 3.91% by mid-December. Market participants have split into three camps: those anticipating rate reductions beginning in Q1 2024, those predicting two cuts before the November election, and those who believe rates will remain elevated throughout 2024.

We avoid rate forecasting — it’s speculation. Our informal estimate: two Fed cuts and a Treasury yield around 3.75% by summer 2024. If you’re a borrower, begin the refinance process at least nine months prior to loan maturity to capitalize on favorable rate movements.

Single Tenant Triple Net

Inventory levels are expanding across major credit tenants including Starbucks, Chipotle, 7-Eleven, and Dollar General. Developers have slowed their pace due to reduced debt availability and increased property supplies. Our expectation: cap rates will increase more in the next four months than they did in the previous twelve months combined.

Construction financing is available at 85% loan-to-cost with SOFR rates of 450–500 basis points for major credits. Mini permanent loans offer up to 75% LTC at 250–350+ basis points over the 5-year Treasury with 3–5 year terms and 25-year amortization.

Life Companies

Life insurance companies are actively deploying capital to acquire higher-quality assets. Our represented companies are projecting volume increases of 5–10% in 2024, with current fixed rates ranging from 6.5%–7.5%.

Bridge Lending

New bridge lender entrants have emerged. Program options include loans of $10M+ at 80% LTC with SOFR+300 rates, and stretch senior programs offering 90% LTC or 75% LTV on stabilized value.

Year End

Lenders remain available for year-end closings, though rates start at 10%. Explore all options before making a decision.