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Net Leased Bank Report Q1 2019

The Boulder Group’s bank report provides comprehensive numbers and analysis of the net lease property market

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Net Leased Bank Report Q1 2019

  1. 1. www.bouldergroup.com THE NET LEASE BANK GROUND LEASE REPORT Q1 2019 Q1 2018 Q1 2019 Basis Point Tenant (Previous) (Current) Change Bank of America 4.53% 4.50% -3 Chase Bank 5.00% 5.00% 0 PNC Bank 4.50% 4.55% +5 TD Bank 4.95% 5.35% +40 Other Banks 4.84% 5.15% +31 All Bank Ground Leases 4.63% 4.84% +21 BANK GROUND LEASE PROPERTIES MEDIAN ASKING PRICE Tenant Average Price Bank of America $4,070,000 Chase Bank $4,280,000 PNC Bank $2,528,900 TD Bank $6,306,000 Other Banks $3,235,400 All Bank Ground Leases $3,850,000 MEDIAN ASKING CAP RATE BY LEASE TERM REMAINING MARKET OVERVIEW Cap rates for the single tenant bank ground lease sector increased by 46 basis points to 5.30% in the first quarter of 2019 compared to one year ago. In the past two years, cap rates in the bank ground lease sector increased by more than 65 basis points while net lease retail cap rates increased by only 8 basis points. For the purpose of this report, the bank ground lease sector is comprised of both national and regional banks, regardless of credit. Transaction volume for single tenant bank branches decreased by more than 9% in 2018 when compared to 2017. This can be primarily attributed to the concern among investors regarding the future need of brick and mortar banking facilities. Additional concerns from investors include high rents that are typically above their current submarket levels and difficult to repurpose buildings. Bank branch expansion remains limited, causing the supply of properties to be saturated with seasoned leases. The median remaining lease term for bank ground leases dropped below 10 years for the first time since The Boulder Group began covering the bank ground lease sector. The typical bank ground lease investor prefers longer term leases which in turn has lowered the demand for this asset class due to the current supply of shorter-term leases.Accordingly, the significant cap rate premium historically associated with the bank ground lease sector compressed to 97 basis points. Five years ago, the bank ground lease sector regularly saw a 200 plus basis point premium over the net lease retail sector. Investor demand for bank ground leases will remain fragmented. Some will be seeking assets with long term leases, strong branch deposits and a lease with a tier one financial institutions. While others will be focused on residual real estate with in-place rents comparable to the surrounding area. However, the expectation is that interest in bank ground leases will remain lower than other net lease investment classes. Lease Term Remaining Cap Rate 20+ 4.78% 15-19 5.03% 10-14 5.27% Under 10 5.75% BANK GROUND LEASE PROPERTIES MEDIAN ASKING CAP RATE The above data reflects bank ground leases with 12 or more lease years remaining. The above data reflects bank ground leases with 12 or more lease years remaining.
  2. 2. www.bouldergroup.com THE NET LEASE BANK GROUND LEASE REPORT Q1 2019 SELECTED BANK GROUND LEASE SALES COMPARABLES Sale Date Tenant City State Price Cap Rate Lease Term Remaining Feb-19 Wells Fargo (GL) District Heights MD $3,900,000 6.43% 9 Apr-19 TCF Bank (GL) Richfield MN $2,925,000 6.25% 9 Mar-19 Bank of America (GL) Henderson NV $2,218,000 6.00% 6 Feb-19 SunTrust (GL) Purcellville VA $7,000,000 5.50% 14 Sep-18 Bank of America (GL) Richmond TX $2,800,000 5.50% 10 Jul-18 Wells Fargo (GL) Phoenix AZ $6,225,000 5.40% 9 Jul-18 Capital One (GL) Keller TX $2,837,500 5.29% 12 Mar-19 Chase Bank (GL) Wylie TX $3,085,000 5.10% 8 Oct-18 Regions Bank (GL) Missouri City TX $2,983,690 4.77% 20 BANK GROUND LEASE VS RETAIL NET LEASE CAP RATE TRENDS 4.10% 4.60% 5.10% 5.60% 6.10% 6.60% 7.10% 7.60% 8.10% 8.60% Q1 2004 Q1 2006 Q1 2008 Q1 2010 Q1 2012 Q1 2014 Q1 2016 Q1 2018 Retail Bank
  3. 3. www.bouldergroup.com THE NET LEASE BANK GROUND LEASE REPORT Q1 2019 � 2019. 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 verified the information and we make no guarantee, warranty or representation about it. This information is provided for general illustrative purposes and not for any specific recommendation or purpose nor under any circumstances shall any of the above information be deemed legal advice or counsel. Reliance on this information is at the risk of the reader and The Boulder Group expressly disclaims any liability arising from the use of such information. This information is designed exclusively for use by The Boulder Group clients and cannot be reproduced, retransmitted or distributed without the express written consent of The Boulder Group. FOR MORE INFORMATION John Feeney | Senior Vice President john@bouldergroup.com Scott Harris | Vice President scott@bouldergroup.com Jeff Weil | Vice President jeff@bouldergroup.com Tenant Total Number of Branches Credit Rating Market Cap (Billions) Associated Bank 230 BBB+ $3.7 Bank of America 4,600 A- $287.3 BB&T 1,800 A- $37.8 BMO Harris 600� A+ $50.5 Chase Bank 5,100 A+ $368.4 Citibank 2,649 BBB+ $161.1 Fifth Third 1,312 A- $21.2 KeyBank 1,197 BBB+ $17.0 PNC Bank 2,481 A $60.2 Regions Bank 1,899 A- $15.4 TCF Bank 425 BBB- $3.6 TD Bank 1,301 AA- $104.0 US Bank 3,067 A+ $81.9 Wells Fargo 8,050 A- $214.7 COMPANY COMPARISON CONTRIBUTORS Randy Blankstein | President randy@bouldergroup.com Jimmy Goodman | Partner jimmy@bouldergroup.com AUTHOR Spread Tenant Closed Ask (bps) Bank Ground Leases 5.19% 4.84% 35 BANK GROUND LEASE SECTOR VS NET LEASE SECTOR CAP RATE MEDIAN CLOSED CAP RATE SPREAD Q1 2018 Q1 2019 Tenant (Previous) (Current) Bank Ground Lease Sector 4.84% 5.30% Retail Net Lease Market 6.10% 6.27% Bank Ground Lease Premium (bps) +126 +97 The above data reflects bank ground leases with 12 or more lease years remaining.