Envoy president Ralph N. Cram consulted his personal crystal ball over the holiday break and his orbuculum-gazing told him that there are "interesting times" ahead for the net lease market.
Up first in the forecast are the repercussions expected to be felt from rising interest rates. “This is the year interest rates really start to matter for developers and buyers,” Mr. Cram predicts. “For developers, construction loan proceeds are likely to be pinched as loan rates begin to approach the rent constants used to underwrite their deals, and debt service coverage ratio limitations kick in.”
Likewise, some pain may be in store for those on the opposing side of the equation. “In the acquisition world,” Mr. Cram’s quartz sphere tells him that “buyers are going to have to accept lower returns on equity as interest rate costs increase,” an unattractive outlook to be sure, with the only defensive option for buyers being to opt out of participating in the market altogether.
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