net lease bank research report
TRANSCRIPT
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THE NET LEASE
BANK GROUND LEASE REPORT
BANK GROUND LEASE PROPERTIES
MEDIAN ASKING CAP RATES
Q1 2012 Q1 2013 Basis PointTenant (Previous) (Current) Change
Bank of America 6.00% 5.30% -70
Chase 5.60% 5.00% -60
PNC 5.95% 5.25% -70
Wells Fargo 5.80% 4.88% -92
All Bank Ground Leases 5.85% 5.00% -85
The above data refects bank ground leases with 15 or more lease
years remaining.
BANK GROUND LEASE PROPERTIES
MEDIAN ASKING PRICE
MARKET OVERVIEW
Cap rates in the single tenant bank ground lease sector compressed by
85 basis points over the past year to a 5.0% cap rate. This represented
the lowest cap rate levels in this sector since 2004. The cap rate
compression was caused by increased demand for bank ground leaseswhich on average have an overall lower absolute dollar amount than fee
simple assets. Further contributing to such compression is the lack of
net lease assets leased to investment grade tenants with reoccurring
rental escalations; bank ground leases typically have multiple rentalescalations in the primary term and renewal options. Additionally, bank
ground leases historically have low default rates, require zero landlord
responsibilities and have a price point that appeals to wide array of
non-institutional investors. Due to the absolute dollar size and loweryields associated with this asset type, the acquisition of bank ground
leases are favored by individual investors and 1031 exchange investors
rather than institutions. As a result of the aforementioned attributes,
bank ground leases are commanding a 225 basis point premium to thetotal net lease retail market sector.
Online banking has become more prevalent causing investors to have
concerns regarding bank properties; however there have been limitedclosures of free standing locations. As the presence of online baking
continues to grow, the construction rate of new bank branches has
slowed when compared to the past few years. Although the increased
usage of online banking has caused some nancial institutions to reduce
their traditional bank branches, the vast majority of new locations are
relocations of inline branches moving to nearby freestanding branches.
The advantages that free standing bank branches have over inline
locations include superior security and convenience, higher visibilityand the ability to offer multiple drive through lanes. Free standing bank
ground leased assets historically have the lowest default rates in the net
lease sector and remain in high demand amongst investors despite the
evolving bank branch industry model.
Transaction volume in the bank ground lease sector remains
concentrated in properties with long term leases; however shorter
term ground leases with strong bank branch deposits will generatesignicant interest. Expect investor demand to remain high with interest
rates at their current level. Bank ground leases should remain a viable
option for typical xed income investors. The bank ground lease sector
will continue to demand a premium to the net lease retail market asindividual investors seek investment grade tenanted properties with
multiple rental escalations in the primary lease term.
Tenant Average Price
Bank of America $5,000,000
Chase $3,105,000
PNC $4,430,000
Wells Fargo $3,294,000
All Bank Ground Leases $3,500,000
Sector Closed Asking Spread (bps)
Bank Ground Lease 5.58% 5.25% 33
MEDIAN CLOSED
CAP RATE SPREAD
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THE NET LEASE
BANK GROUND LEASE REPORT
SELECTED BANK GROUND LEASE SALES COMPARABLES
BANK GROUND LEASE VS RETAIL NET LEASE CAP RATE TRENDS
Sale
Date Tenant City State Price
Cap
Rate
Lease Term
Remaining
Dec-12 Chase Bank Royal Palm Beach FL $4,800,000 5.10% 20
Mar-13 Chase Bank Peoria AZ $3,600,000 4.98% 16
Mar-13 Bank of America Warrenville IL $3,400,000 5.66% 11
Feb-13 Comerica Bank Surprise AZ $3,320,000 5.63% 16
Apr-13 TCF Bank Richeld MN $2,869,999 5.75% 14
Dec-12 Chase Bank Country Club Hills IL $2,290,000 5.52% 24
Dec-12 Wells Fargo Nashville TN $2,200,000 6.00% 15
Mar-13 Key Bank Thornton CO $2,190,000 5.70% 17
Mar-13 BB&T Knightdale NC $2,010,000 5.02% 13
Dec-12 Fifth Third Bank Franklin OH $1,306,500 5.74% 13
Apr-13 Associated Bank Machesney Park IL $1,180,000 5.93% 20
Retail Bank
Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 20134.75%
5.25%
5.75%
6.25%
6.75%
7.25%
7.75%
8.25%
8.75%
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THE NET LEASE
BANK GROUND LEASE REPORT
Bank Total Number of Branches Credit Rating Market Cap (Billions)
Associated Bank 240 BBB $2
Bank of America 5,500 A- $129
BB&T 1,832 A- $21
BMO Harris 1,570 A+ $39
Chase Bank 5,600 A $182
Comerica Bank 489 A- $7
Fifth Third 1,325 BBB $14
Key Bank 1,088 BBB+ $8
PNC Bank 2,881 A- $34
Regions Bank 1,700 BBB- $11
TCF Bank 194 BBB- $2
TD Bank 1,168 AA- $73
Wells Fargo 9,000 A+ $193
COMPANY COMPARISON
FOR MORE INFORMATION
AUTHOR
John Feeney | Research Director
CONTRIBUTORS
Randy Blankstein | President
Jimmy Goodman | Partner
Chad Gans | Research Analyst
© 2013. The Boulder Group. Information herein has been obtained from databases owned and maintained by The Boulder Group as well as third party sources. We have not veried the information and we
make no guarantee, warranty or representation about it. This information is provided for general illustrative purposes and not for any specic recommendation or purpose nor under any circumstances shall
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MEDIAN ASKING CAP RATE BY LEASE
TERM REMAINING
Lease Term Remaining Cap Rate
20+ 5.00%
15-19 5.10%
10-14 5.50%
Under 10 5.65%
BANK GROUND LEASE SECTOR VS
NET LEASE SECTOR CAP RATE
Q1 2012 Q1 2013Sector (Previous) (Current)
Bank Ground Lease 5.85% 5.00%
Retail Net Lease Market 7.75% 7.25%
Bank Ground Lease Premium (bpm) 190 225
