Net Lease News

B+E Weekly Newsletter

February 20 – February 26, 2024

MARKET

SLIGHT UPTICK IN CRE LOAN CLOSINGS SIGNALS POSSIBLE STABILIZATION OF FINANCING MARKET | Bisnow

• Indications from The Federal Reserve that borrowing costs have peaked are restoring confidence and paving the way for more transactions.
• Still, a decline in credit spreads, less fluctuation between the highest and lowest prices at which properties are being bought and sold, and higher cap rates are beginning to put certain deals into motion.
• Banks comprised nearly 40% of the lender pool at the end of last year, followed by alternative sources, such as debt funds and mortgage real estate investment trusts, life insurance companies, and commercial-backed mortgage securities. 
• Floating-rate debt remained popular as a refinancing and acquisition tool, comprising one-third of total loan volume. The average underwritten cap rate rose by 16 basis points to 5.68%, while the average loan-to-value ratio rose to 61.4%, up from 58.3% in Q3.

WHAT DEALMAKERS ARE DOING AS THEY WAIT FOR FED TO LOWER RATES | GlobeSt.com

• Debt funds have a lot of capital but also elevated return expectations that stretch beyond what most borrowers want to pay, so unless they have to transact, many debt fund borrowers continue to be on the sidelines, especially given the recent increase in treasury rates.
• Then there is CMBS, whose spreads have compressed, but borrowers are still concerned given volatility could creep back into the market and certainty of execution at the originally quoted terms are always questioned.
• That said, it should be pointed out that CMBS originations in Q4 increased substantially in the industrial, retail, and hospitality sectors compared to the same period last year.

OFFICE

MEDICAL OFFICE TO PERFORM WELL IN 2024 | Commercial Search

• Occupancy remains attractively high compared to other classes, and an aging U.S. population creates ample demand for healthcare services. While interest rates are expected to remain elevated this year the lack of new supply and favorable demographic trends offer an attractive investment environment for healthcare investors.
• Cap rates for MOBs increased due to interest rate hikes. Based on the widespread expectation of Fed rate cuts over the next 12 to 24 months, however, many investors are starting to underwrite exit/reversion cap rates closer to the going-in rates for MOBs.
• Half of survey respondents expect discount rates to continue to be compressed over the next year, with typical discount rates expected to be 75-100 basis points higher than exit/reversion rates.

RETAIL

FOCUS BRANDS TO REBRAND AS ‘GOTO FOODS’ IN TRANSFORMATIONAL PUSH | QSR Magazine

• The CEO hinted in the future, the restaurant group may merge all the loyalty programs into one entity, under the “GoTo Foods” banner.
• This is all possible because of multi-year changes into a united restaurant platform. After Holthouser entered his role in 2020, GoTo Foods switched from becoming a holding company with seven siloed brands to one that shares enhanced, centralized systems across the portfolio, like common digital platforms that offer suggestive selling to increase orders and average order size and targeted marketing to bring back lapsed users or appeal to frequent customers.

WAWA TO OPEN 70-PLUS STORES IN 2024 | Chain Store Age

• The openings will include Wawa’s first locations in three new states: Alabama, Georgia, and North Carolina.
• The company noted that every new Wawa store generates at least 35 new local long-term jobs per store and becomes a committed community partner supporting local causes and raising millions of dollars chainwide through in-store fundraising campaigns that benefit national and local non-profit partners serving in the community.
• The privately held Wawa operates nearly 1,000 locations throughout Pennsylvania, Delaware, New Jersey, Maryland, Virginia, Florida, and Washington, D.C.

OUTBACK STEAKHOUSE PARENT BLOOMIN’ BRANDS CLOSING 41 RESTAURANTS | Nation’s Restaurant News

• Bloomin’ Brands Inc., parent to the Outback Steakhouse, Carrabba’s Italian Grill, and other brands is closing 41 restaurants across its portfolio as it weighs underperforming units, executives said Friday.
• Despite this initiative, the confidence in their portfolio remains high as they plan to open 40 to 45 new restaurants across the system in 2024.
• Deno added that Bloomin’ plans to increase its 2024 marketing spend by $20 million to build traffic with a blend of television and digital advertising.
• As of Dec. 31, Bloomin’ had 1,480 restaurants, including 688 Outback Steakhouses in the U.S., 217 Carrabba’s Italian Grills, 176 Bonefish Grills, 64 Fleming’s Prime Steakhouse & Wine Bars, five fast-casual Aussie Grills and 330 internationally.