U.S. net-lease investment surged in 2024, led by the industrial & logistics sector, CBRE reported. On a dollar-volume basis, 2024 saw a 13% year-over-year increase to $43.7 billion, boosted by an especially strong fourth quarter.

Industrial & logistics increased its share of net-lease investment activity to 64% in Q4 from 54% a year earlier. In 2024, investment volume for industrial increased 87% from a year earlier.

“The net-lease sector demonstrated remarkable resilience and growth in 2024, driven by its stability and appeal to investors seeking compelling risk-adjusted returns,” said Will Pike, vice chairman of net lease properties for capital markets at CBRE. “We anticipate continued momentum in net-lease investment, especially in retail and the industrial & logistics sector, as investors prioritize low-risk opportunities amid potential capital markets volatility in the first half of 2025.”

The average cap rate rose by nine basis points quarter-over-quarter and 56 bps Y-O-Y to 6.8% in Q4 2024.

Pictured: A net-leased FedEx facility in Portland, OR, which traded for $32 million in 2024. Courtesy B+E.

Acquisition volumes among net lease REITs decreased modestly in the third quarter of 2024, as costs of capital remain volatile for most of the REITs, Green Street said in its latest report on the sector. Transaction volume was down 45% from Q3 2023 and down 50% from the same period two years ago.  

Although the net lease sector’s gross asset value premium averaged 13% in Q3, compared to 6% in the previous quarter, Green Street noted that this was skewed higher by outsized GAV premiums among two of the seven publicly traded REITs in the data and analytics firm’s coverage universe. “As such, most REITs are abiding by their weaker-than-normal cost of equity signal and acquiring less,” according to Green Street.  

Looking ahead, Green Street reported that most net lease REITs anticipate “a significant uptick in transaction volumes” in Q4 of this year and heading into 2025. 

Pictured: A Cooper’s Hawk Winery & Restaurant property in the Essential Properties Realty Trust portfolio.

U.S. banks reported a 20% sequential increase in total high-volatility commercial real estate (HVCRE) loans in the second quarter of 2024 following a four-year low balance in Q1, according to S&P Global Market Intelligence. The aggregate HVCRE loan balance for US banks stood at $34.93 billion during the quarter, up from $29.11 billion in Q1 but down 5.2% from $36.83 billion a year ago 

HVCRE loans in the second quarter accounted for 0.24% of the sector’s total risk-weighted assets, up four basis points from a quarter earlier. 

Dublin, GA-based Morris Bank reported the highest ratio of HVCRE loans to risk-weighted assets among top-tier US banks with at least $1 billion in total assets. The Morris State Bancshares Inc. subsidiary reported $265.3 million in total HVCRE loans during the quarter, or 19.9% of its risk-weighted assets, S&P Global said. 

With $2.09 billion in total HVCRE loans as of June 30, Goldman Sachs retained its position as the top HVCRE lender for the third consecutive quarter. The total loan balance represented a 1.0% quarter-over-quarter increase and accounted for 0.3% of the company’s risk-weighted assets. 

Regulators define high-volatility commercial real estate ADC loans as credit facilities that primarily finance or refinance acquisition, developments or constructions of real properties. They’re used to provide financing to acquire, develop or improve properties into income-producing ones that are dependent on future income, sales or refinancing for repayments. 

The distressed property market is just beginning to unfold, with significant challenges still ahead. On October 22, hear experts from Trimont, Greystone, Transwestern and more discuss the rising tide of distressed assets, upcoming CMBS maturities, and stricter underwriting practices. Gain insights into what lies ahead as we transition into 2025 at Connect Distressed Investment & Finance at the Luxe on Sunset in LA.