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Net Lease Investment Services

Single Tenant

Net Lease

Investment Overview

Fall 2012

Garrick BrownDirector of Research

San Francisco

916.329.1558

[email protected]

For more information regarding

this report, contact:

2Cassidy Turley Net Lease Investment Services

Big Picture UpdateAfter a relatively robust fi rst half of the year, investment sales

activity has slowed for nearly every single-tenant property type that

we track. But this decline in activity has been due to a shortage of

available product in the marketplace and is not refl ective of investor

demand, which continues to be on the increase. By the close of

the third quarter, it was apparent that deal velocity had simply

slowed across the board and in virtually every region of the United

States. Though there is a natural lag time involved in gathering

deals, our preliminary numbers and forecast

fi nal statistics for the third quarter of 2012

indicate slowing deal velocity all around. On

the drug store front, we anticipate a total of

45 closed deals nationally, indicating a 27%

decrease from the 62 sales that closed in

the second quarter of this year. Fast food will

close the quarter with roughly 130 deals—a

26% drop from the 175 transactions that

were inked last quarter. Approximately 135

automotive retail properties moved in the

third quarter, down 11% from second quarter

totals (152 deals). Single-tenant industrial

investment properties accounted for 275

deals nationally during the third quarter—a

36% decrease from the 429 sales that posted

last quarter. Big box retail also saw a decline

in sales activity. Junior boxes accounted for

roughly 30 deals this quarter, compared to

45 during the second quarter of 2012. Mid-

box sales activity dropped from 33 deals last quarter to about 25

sales this quarter. Only mega-boxes saw an increase in activity with

a likely twelve deals closing in the third quarter, up from nine.

The primary reason behind this slowdown is that the market

continues to struggle with a lack of properties available for sale.

For example, we are currently tracking 302 drug store properties

available for sale throughout the United States. At the beginning

of this year, we were tracking 389 available properties. Drug store

availability has fallen by 22% since our Spring 2012 report. Fast

food investment availability has fallen by 12%--we are currently

aware of 966 fast food properties available nationally compared

to 1,103 in January. Automotive property availability is down by

11%. The 2,275 available automotive investment properties we are

currently tracking compare to 2,568 offerings on the market nine

months ago. The only property type to not show a signifi cant decline

in availability have been single-tenant industrial. We are currently

tracking 1,572 offerings (just industrial buildings of 50,000 square

feet or more, not including fl ex or R&D product), compared to 1,585

total properties on the market at the start of 2012.

The fact is that net-leased investments remain at the top of most

investor wish lists, particularly when it comes to private investors.

This is not just because of the relative simplicity of being the

landlord of a single-tenant triple net leased investment, but

also because of the security offered by some of the top users of

these properties.

In the meantime, occupancy is what is at the heart of all net

leased investment trends. That being said, the most sought after

properties are those with long-term leases in place to stellar credit

tenants. McDonald’s leads the pack thanks to their exceptional

credit, their strong sense of site selection (McDonald’s locations

rarely fail) and the fact that their leases tend to be very long. Drug

stores follow, though in the national three-

horse race between Walgreen’s, CVS and

Rite Aid, only two remain in high demand.

All work with long-term leases, but while

CVS (A2) and Walgreen’s (B1) and CVS

have strong credit, Rite Aid (E1) continues

to operate with an excessive debt-load and

strong doubts as to their long-term ability to

service that debt. Last year Rite Aid shuttered

52 locations (current store count of 4,652)

while Walgreen’s added 172 stores (for a total

of 8,343) and CVS added 128 new units (for

a total count of 7,457 locations). Because of

this, it should come as little surprise that CVS

and Walgreen’s accounted for roughly 90% of

all the trades inked during the third quarter,

typically moving with cap rates of 6.0% or

less in place. Meanwhile, the Rite Aid stores

that have sold have generally been with cap

rates of 8.0% or more in place.

But aside from the typical dominance of a few fast food and drug

store chains, we are also seeing rising demand for both automotive

net leased properties and single-tenant industrial investment as

well. Both of these property types are seeing increased investor

demand due to stronger fundamentals and better rates of return.

Despite the ongoing economic challenges of a slow recovery and

global problems (the ongoing Eurozone recession, slowing world

economic growth, etc.), the investment outlook in the United States

is generally more positive with most of the chief near-term threats

to U.S. economic growth viewed primarily as policy issues and

not underlying organic weaknesses. Meanwhile, the Fed’s recent

act to provide more stimulus was generally viewed as a positive

development within the investment community. All of this is lending

itself to investors feeling more comfortable with seeking out higher

levels of risk/reward than they had over the last few years as they

retrenched in the aftermath of the downturn. As a result, cap rates

will continue to compress for stabilized fast food, automotive and

industrial properties but can’t fall much farther for drug stores.

Meanwhile, look for pricing to generally increase for most net lease

investment types in the majority of major U.S. markets… with just

one exception.

The decline in investment sales activity that we have seen over

the last few months is not because demand is down.

It’s actually up. The problem has been too

few net leased opportunities for sale in

the marketplace.

Single Tenant Net Lease

Investment Overview Fall 2012

www.cassidyturley.com 3

The New Big Box is SmallThe one place where we are seeing shrinking overall values for

net leased investment is in the big box retail arena, however,

not all boxes are created the same. The fact is that space users

are scaling back their footprints and we continue to see more

closures than openings when it comes to mid-box and mega-box

space. However, demand for junior box space is actually up. We

track active retailer growth plans throughout the United States.

The pool of retail space requirements we are tracking in the 20,000

to 40,000 square foot range is currently about fi fteen times

the size of what we are aware of for spaces of 40,000 square feet

or greater.

For mid-boxes, 2013 will be a challenging year. For the past couple

of years, we have seen an increase in the numbers of new players

getting into the grocery business, most of them non-unionized.

Target has added full grocery sections to nearly every one of their

locations in the United States. Walmart is launching two small

format concepts (the 15,000 square foot Express and 30,000

square foot Neighborhood markets) while their British nemesis,

Tesco, has been expanding their Fresh and Easy concept. A

new slew of niche grocers have also been on the move, ranging

from luxury (Whole Foods) to discount (Grocery Outlet), ethnic

(Northgate Gonzalez) to organic (Sprouts Farmers Market). Drug,

dollar and convenience stores are all upping their food offerings.

This is the year that something will give and that something will

largely be mid-priced unionized small-market or regional players.

The space that will be returned to the

marketplace will largely be mid-box

space in the 50,000 to 70,000 square

foot range. Meanwhile, mega-boxes will

also continue to see more space being

put on the market than being taken

down over the next year, though they

will likely fare better than mid-boxes.

So what will this mean to the net leased

market? For mid-boxes, we had seen

some nominal pricing gains for Class

A product over the past year, providing

it had long-term leases in place to

solid credit tenants. But this had only

been in some of the strongest primary

marketplaces. Otherwise, pricing had

generally been fl at for A product in most

secondary and tertiary markets. Pricing

for stabilized Class B product has also generally been fl at in most

markets, while Class C product (even those with tenancy in place)

has generally seen fl at to negative movement in pricing. With

fundamentals for this property type likely to erode in the coming

year and with more tenants shrinking their footprints, we anticipate

downward pressure on pricing for most mid-box properties in the

coming year. The strongest Class A properties with superior tenants

locked in will likely escape with fl at growth. Meanwhile, the best

option for many landlords of recently vacated properties may be to

demise their mid-boxes to attract smaller, junior box users.

Pricing trends in general for mega-boxes have been fl at to negative

over the past year. We have seen some minimal price gains for

Class A product, but only for elite properties in the best performing

primary marketplaces providing they had sterling credit tenants

locked into long-term leases. Otherwise, pricing for Class A mega-

boxes has been fl at in most secondary and tertiary markets.

Pricing has been fl at to slightly negative for occupied Class B

properties with projects in primary markets

faring best and those in tertiary locations

faring worst. Meanwhile, Class C mega-box

product, even if tenants are in place, has

typically seen price erosion over the past

year. Unfortunately for sellers, we don’t see

a lot of relief coming soon. The slow return

of housing might mean that furniture store

users may be active and there will be a slow

return of the DIY crowd, though Lowe’s and

Home Depot tend to only look at Class A or

B+ second generation space if considering

anything other than a build-to-suit. But

continued weakness from Sears/Kmart will

result in more closures from that chain that

will impact the mega-box market, if not a

full-scale bankruptcy and liquidation in

2013. In general, pricing will fall. Only Class

A+ properties that are fully leased to bulletproof tenants in the top

high-density primary markets might escape this trend.

But there is some good news. Junior box fundamentals are strong

and we see nothing changing this. Space users are shrinking their

footprints, but this is mostly larger users moving downward a notch.

Junior box fundamentals should actually improve over the course of

2013. Decreasing vacancy and increased rental rate growth (with

perhaps the exception of Class C properties) will help to drive both

increased investor demand for net leased junior boxes, but sale

pricing increases and cap rate compression in the coming year.

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5%

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8%

9%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Cap Rate Average Price PSF

Single Tenant Retail Properties Average Cap Rate & Sale Price (PSF) Trend

Source: Cassidy Turley Northern California Research, Costar, Real Capital Analytics

So what will this mean to the net leased market? For

mid-boxes, we had seen some nominal pricing gains for Class A product over the past year, providing it had

long-term leases in place to solid credit tenants.



4Cassidy Turley Net Lease Investment Services www.cassidyturley.com

Drug Store Retail Trends

• Our preliminary data for the third quarter of 2012 indicates that sales activity for drug

stores fell slightly. We are currently aware of 31 transactions that have taken place

over the past three months. However, as there is a natural lag time involved in gathering

deals and because these numbers were culled in mid-September, we expect the

fi nal tally for third quarter transactions to likely be about 45 total deals. This compares

to 62 deals that closed during the second quarter of 2012 and 64 transactions in

the fi rst.

• Preliminary deal volume for the third quarter currently stands at just under $146

million, but we expect the fi nal tally to approach $200 million. This compares to a total

deal volume of just under $314 million posted during the second quarter and $291.7

million in sales transacted during the fi rst quarter of 2012.

• The average price on drug stores that closed during the third quarter was $366 per

square foot. This compares to an average of $386 per square foot during the second

quarter and $347 per square foot during the fi rst quarter of 2012. One year ago, it

stood at $330 per square foot.

• The average capitalization rate on drug store deals during the third quarter was 6.8%.

This compares to 7.0% in the second quarter and 7.1% during the fi rst quarter. One

year ago, this metric stood at 7.3%. It has consistently moved downward since the

fourth quarter of 2009 when it peaked at 8.1%.

• Demand from private investors has remained strong---triple net investments, drug

stores in particular, remain among their favorite assets. Of the deals that we have

tracked through the fi rst three quarters of 2012, private investors account for 81%

of all activity. Institutional buyers accounted for 13% of all purchases, while REITs,

foreign investors and other types accounted for the remaining 6%. Institutional demand

continues to slowly rise. Institutional buyers accounted for 9% of all transactions that

closed in 2011 and just 5% of the deals inked in 2010. Private investment is also up;

accounting for 75% of all deals last year and 81% of the purchases so far this year.

REITs, on the other hand, accounted for 14% of the transactions recorded in 2011 but

less than 3% so far this year.

Top Drug Store Deals

Walgreens

Nyack, NY

Price: $10,500,000

Cap Rate: 6.3%

Walgreens

Sunnyvale, CA

Price: $10,050,000

Cap Rate: 5.6%

CVS

Portland, TX

Price: $3,200,000

Cap Rate: 6.7%

Walgreens

Austin, TX

Price: $4,850,000

Cap Rate: 7.4%

$100

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5%

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9%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012


Single Tenant Drug Store PropertiesAverage Cap Rate & Sale Price (PSF) Trend


5

Property Total SF Sale Date Sale Price Price PSF Cap Rate

Walgreens 1201 Main Street, Peeksill, NY 11,062 05/2012 $11.00 M $997 6.5%

Walgreens 17239 Five Points Sq, Lewes, DE 14,820 05/2012 $9.35 M $631 6.3%

Walgreens 1366 Broadway, Brooklyn, NY 9,532 06/2012 $7.55 M $792 6.1%

Rite Aid 4113 William Penn Hwy, Monroeville, PA 12,738 03/2012 $4.95 M $388 8.9%

CVS 200 E Plank Rd, Altoona, PA 8,000 07/2012 $4.22 M $527 7.4%

CVS 65 Quaker Ave, Cornwall, NY 12,680 06/2012 $4.11 M $324 6.9%

Single Tenant Drug Store Market US Northeast Region Select Major Sale Transactions


CVS 1751 Columbia Rd, Washington, DC 12,564 08/2012 $14.50 M $1,154 6.0%

Walgreens 1835 W Sand Lake Rd, Orlando, FL 14,490 02/2012 $10.30 M $711 6.4%

Walgreens 2145 Union Ave, Memphis, TN 27,800 05/2012 $9.50 M $342 6.5%

Walgreens 1510 Sardis Rd N, Charlotte, NC 14,490 08/2012 $5.44 M $375 6.9%

CVS 10222 East Fwy, Houston, TX 13,013 07/2012 $4.94 M $379 6.5%

CVS 3190 Zelda Rd, Montgomery, AL 11,970 09/2012 $4.22 M $352 6.4%

Single Tenant Drug Store Market US Southern Region Select Major Sale Transactions


Walgreens 4205 Egan Dr, Savage, MN 14,820 05/2012 $7.40 M $499 6.4%

Walgreens 2011 E. 95th St, Chicago, IL 15,120 06/2012 $5.47 M $362 7.5%

Walgreens 220 S Century Blvd, Rantoul, IL 11,203 04/2012 $4.35 M $388 6.8%

Walgreens 1982 Eight Mile Rd, Cincinnati, OH 14,560 06/2012 $3.97 M $273 6.7%

CVS 3 N Cleveland Ave, Mogadore, OH 10,224 05/2012 $2.60 M $254 6.9%

CVS 1001 E Main St, Dayton OH 10,772 02/2012 $1.95 M $182 7.2%

Single Tenant Drug Store Market US Midwest Region Select Major Sale Transactions


Walgreens 3025 S. Las Vegas Blvd, Las Vegas, NV 16,016 05/2012 $27.86 M $1,740 7.0%

Walgreens 880 Sutton Rd, Grass Valley, CA 14,468 08/2012 $12.23 M $845 6.5%

Walgreens 2870 28th St, Boulder, CO 14,820 04/2012 $7.39 M $499 6.3%

CVS 800 Palm Ave, Imperial Beach, CA 14,884 08/2012 $7.00 M $470 5.6%

Rite Aid 3130 Simpson Ave, Bremerton, OR 17,339 03/2012 $6.56 M $379 8.5%

Walgreens 1654 N Pebble Creek Pky, Goodyear, AZ 14,820 04/2012 $5.00 M $337 5.3%

Single Tenant Drug Store Market US West Region Select Major Sale Transactions




Fast Food Retail Trends

• Our preliminary data for the third quarter of 2012 indicates that sales activity for fast

food properties fell slightly. We are currently aware of 105 transactions that have

taken place over the past three months. Our fi nal tally will likely exceed 130 deals.

This compares to 175 deals that closed during the second quarter of 2012 and 140

transactions in the fi rst.

• Dal volume for the third quarter currently stands at just over $95.3 million, but we

expect our fi nal tally to approach $120 million. This compares to a total deal volume

of just under $173 million posted during the second quarter and over $122 million

during the fi rst quarter.

• The average price on the fast food deals we have tracked during the third quarter was

$336 per square foot. This compares to an average of $366 per square foot during the

second quarter and $324 per square foot during the fi rst quarter of 2012.

• The average capitalization rate during the third quarter was 7.1%, the same level

posted during the second quarter. This is down from 7.5% in the fi rst quarter, but has

moved little over the past year. The lowest cap rates this year have dipped as low as

the high 4.0% range. We have tracked McDonald’s, Taco Bell, Chick-fi l-A, KFC and

Starbucks deals with sub-6% caps. All were in superior urban or suburban locations

with long-term leases in place, most of which to corporate ownership, though there

were some strong local franchise operations also represented. The highest cap rates

we have seen have been as high as 11.0%. We have tracked Whataburger, Sonic

Drive-In, Steak n Shake, Arby’s and KFC deals that have traded with caps above 9.0%.

Note that nearly every location that traded with a higher capitalization rate refl ected

franchise ownership.

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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012


Single Tenant Fast Food PropertiesAverage Cap Rate & Sale Price (PSF) Trend


Top Fast Food Deals

Wendy’s

Castro Valley, CA

Price: $1,567,000

Cap Rate: 5.2%

McDonalds

West Sacramento, CA

Price: $1,895,000

Cap Rate: 4.8%

KFC

Wilkesboro, NC

Price: $1,650,000

Cap Rate: 7.5%

Panda Express

Crestwood, IL

Price: $1,185,000

Cap Rate: 6.5%

7

Single Tenant Fast Food Market US Northeast Region Select Major Sale Transactions


Wendy's 388 Highway 35, Keyport, NJ 2,581 07/2012 $1.71 M $663 8.4%

Starbucks 2441 Watt St, Schenectady, NY 1,650 08/2012 $1.11 M $673 7.6%

White Castle 530 Southern Blvd, Bronx, NY 1,575 03/2012 $2.00 M $1,270 -

Single Tenant Fast Food Market US Southern Region Select Major Sale Transactions


Burger King 815 S Congress Ave, West Palm Beach, FL 3,039 05/2012 $2.39 M $786 6.0%

Jack in the Box 607 FM 1960 Rd E, Houston, TX 2,495 06/2012 $2.13 M $851 5.4%

Wendy's 5555 El Dorado Pky, Frisco Trails, TX 3,000 09/2012 $1.75 M $584 5.3%

Del Taco 8333 Preston Rd, Frisco, TX 2,373 06/2012 $1.65 M $695 6.7%

KFC 1010 Independence Blvd, Virginia Beach, VA 2,782 08/2012 $1.54 M $552 6.3%

Hardee's 255 S Lowry St, Smyrna, TN 3,371 06/2012 $1.49 M $441 7.5%

McDonald's 1878 W Main St, Locust, NC 4,397 08/2012 $1.38 M $313 4.7%

Single Tenant Fast Food Market US Midwest Region Select Major Sale Transactions


Chipotle 175 Senate Dr, Monroe, OH 3,250 06/2012 $1.68 M $515 6.0%

Taco Bell 1717 Morse Rd, Columbus OH 2,378 04/2012 $1.35 M $568 7.5%

Burger King 10706 Emmet St, Omaha, NE 2,936 06/2012 $1.34 M $454 6.7%

Burger King 244 Grand Ave, Saint Paul, MN 2,275 07/2012 $1.21 M $532 7.5%

Panda Express 13581 S. Cicero Ave, Crestwood, IL 2,488 07/2012 $1.19 M $476 6.5%

Panda Express 380 E Rollins Rd, Round Lake Beach, IL 2,400 04/2012 $1.10 M $458 6.6%

KFC 1407 John F Kennedy Dr, Bellevue, NE 2,138 06/2012 $1.07 M $501 7.0%

Single Tenant Fast Food Market US West Region Select Major Sale Transactions


Jack in the Box 34701 Ardenwood Blvd, Fremont, CA 2,356 03/2012 $2.14 M $906 5.3%

Carl's Jr. 14665 Sunnyside Rd, Happy Valley, OR 2,792 05/2012 $1.98 M $710 6.6%

Del Taco 24023 E Prospect Ave, Aurora, CO 2,314 06/2012 $1.83 M $789 8.2%

Burger King 1857 E Main St, Grass Valley, CA 2,675 09/2012 $1.33 M $495 6.0%

KFC 3518 W Victory Blvd, Burbank, CA 1,504 07/2012 $1.30 M $864 5.9%

Taco Bell 3521 Cannon Rd, Oceanside, CA 2,000 06/2012 $1.22 m $607 4.8%

Arby's 2130 S Power Rd, Higley, AZ 2,600 09/2012 $1.20 M $461 6.1%

McDonalds 1265 W 9000 S, South Jordan, UT 3,296 05/2012 $.86 M $260 5.4%




Single-Tenant Automotive Retail Trends

• Our preliminary data for the third quarter of 2012 indicates that sales activity for

single-tenant automotive retail properties fell slightly. We are currently aware of 109

transactions that have taken place over the past three months but expect our fi nal tally

to reach at least 135 deals. This compares to 152 deals that closed during the second

quarter of 2012 and 169 transactions in the fi rst.

• Deal volume for the third quarter currently stands at just over $61.3 million, but will

likely close out the quarter at $80 million. This compares to a total deal volume of $97.1

million posted during the second quarter and over $106.3 million in sales transacted

during the fi rst quarter of 2012.

• The average price on the single-tenant automotive deals that closed during the third

quarter was $117 per square foot. This compares to an average of $119 per square foot

during the second quarter and $108 per square foot during the fi rst quarter of 2012.

In general, we are seeing gradual price increases across the board. Urban properties

with long-term leases in place to solid national credit tenants are seeing the strongest

increases.

• The average capitalization rate on deals that closed during the third quarter was 6.6%.

Though we don’t expect much movement in this statistic as late closing deal data comes

in, we would not be surprised to see this metric tick up a few basis points. We anticipate

that the fi nal revised average cap rate for the third quarter will likely come in at around

6.8% or 6.9%. This compares to an average rate of 8.1% during the second quarter and

7.8% during the fi rst quarter.

• This quarter’s average capitalization rate is the lowest that the market has posted since

the third quarter of 2008 and refl ects the fact that there are fewer distress sales taking

place. The retailers in this sector have been strong as a whole and most of the properties

that were in distress in the immediate aftermath of the recession have already traded

hands. The majority of properties that were troubled were either aging, functionally

obsolete buildings or those in poor locations. Unlike the big box marketplace, few of the

distress issues within the automotive sector came from retailer failures or bankruptcies

a la Circuit City or Linens N Things.

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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012


Single Tenant Automotive PropertiesAverage Cap Rate & Sale Price (PSF) Trend


Top Automotive Deals

Firestone

Perry Hall, MD

Sale Price: $3,888,000

Cap Rate: 7.2%

Firestone

Fulton, MD


Cap Rate: 7.2%

Just Tires

Apex, NC


Cap Rate: 7.5%

Firestone

Headley, MA

Price: $3,745,100

Cap Rate: 6.9%

9

Single Tenant Automotive Market US Northeast Region Select Major Sale Transactions


Bridgestone / Firestone 9653 Belair Rd, Perry Hall, MD 8,500 04/2012 $3.89 M $457 7.2%

Bridgestone / Firestone 11821 W Market Pl, Fulton, MD 7,610 03/2012 $3.22 M $423 7.2%

Advance Auto Parts 443 New Park Rd, West Hartford, CT 6,124 02/2012 $2.03 M $330 7.5%

Advance Auto Parts 2801 Williamsburg Rd, Richmond, VA 8,075 03/2012 $1.49 M $184 7.6%

Advance Auto Parts 75 Robinson St, Binghamton, NY 7,000 01/2012 $.96 M $138 8.3%

Single Tenant Automotive Market US Southern Region Select Major Sale Transactions


Bridgestone / Firestone 9653 Bel Air Rd, Perry Hall, MD 8,500 04/2012 $3.89 M $457 7.2%

Just Tires 1210 Beaver Creek Commons, Apex, NC 7,100 05/2012 $2.88 M $406 7.5%

Christian Brothers Automotive 23650 Venezia Dr, Land O Lakes, FL 4,921 09/2012 $2.35 M $476 7.6%

National Tire & Battery 2530 Franklin Pike, Nashville, TN 9,600 06/2012 $2.29 M $233 6.5%

Christian Brothers Automotive 742 Garth Brooks Drive, Yukon, OK 4,921 02/2012 $1.66 M $336 8.0%

Advance Auto Parts 696 US Highway 441, Clayton, GA 7,000 06/2012 $1.43 M $204 7.6%

Single Tenant Automotive Market US Midwest Region Select Major Sale Transactions


Bridgestone / Firestone 4850 NW Urbandale Dr, Urbandale, IA 8,736 03/2012 $2.86 M $328 7.2%

National Tire & Battery 5930 Mayfi eld Rd, Mayfi eld Heights, OH 14,519 09/2012 $2.85 M $196 7.0%

Tires Plus 1017 Spring City Dr, Waukesha, WI 8,256 04/2012 $2.54 M $308 7.2%

Tires Plus Appleton Ave, Germantown, WI 7,500 06/2012 $2.00 M $267 8.1%

Advance Auto Parts 34640 Center Ridge Rd, North Ridgeville, OH 6,000 03/2012 $1.67 M $279 8.3%

O'Reilly Auto Parts 415 E North St, Rapid City, SD 7,014 08/2012 $1.40 M $199 7.4%

Single Tenant Automotive Market US West Region Select Major Sale Transactions


Big O Tires 6702 E McKellips Rd, Mesa, AZ 6,320 03/2012 $2.45 M $388 6.8%

O'Reilly Auto Parts 2026 Fruitvale Ave, Oakland, CA 8,000 06/2012 $2.25 M $281 6.4%

Big O Tires 1975 W Happy Valley Dr, Phoenix, AZ 6,000 07/2012 $2.02 M $337 7.3%

Tire Works 8825 W Flamingo Rd, Las Vegas, NV 7,600 05/2012 $1.40 M $184 7.7%

Valvoline 24281 Moultan Pky, Laguna Woods, CA 1,500 09/2012 $1.36 M $910 6.0%

AC Delco 4706 NE Minnehaha St, Vancouver, WA 7,680 02/2012 $.93 M $121 8.0%


Big Box Retail Trends—Junior Box Properties

(20,000 – 39,999 SF)

• Our preliminary data for the third quarter of 2012 indicates

that investment sales activity for junior box retail properties fell

slightly during the third quarter of 2012. We are currently aware

of 22 transactions that have taken place over the past three

months, but expect our fi nal tally as more data comes in to

reach about 30 deals. This compares to 45 deals that closed

during the second quarter of 2012 and 48 transactions in the

fi rst.

• Deal volume for the third quarter currently stands at just over

$127.4 million but will likely close out at roughly $175 million.

This compares to a total deal volume of just under $220 million

posted during the second quarter and just under $193.4 million

in sales in the fi rst quarter.

• The average price on the junior box deals that closed during

the third quarter was $146 per square foot. This compares to

an average of $145 per square foot during the second quarter

and $166 per square foot during the fi rst quarter of 2012. One

year ago, this metric stood at $115 per square foot. The steady

decline in the sale of (and inventory of) distressed properties

has been a positive development.

• The average capitalization rate on junior box deals that closed

during the third quarter was 8.2%, up slightly from 8.1% in

the second quarter. This metric has increased slightly over the

past year (it stood at 8.0% twelve months ago). Though the

pool of distressed junior boxes is shrinking, we are continuing to

see trades of weaker properties skewing averages upward. Our

anticipation is that cap rates for junior boxes will be stabilizing

over the next year and begin to move back downward, but the

movement will be slow.

Big Box Retail Trends—Mid-Box Properties

(40,000 – 79,999 SF)

• Our preliminary data for the third quarter indicates that

investment sales activity for mid-box properties fell slightly

during the third quarter of 2012. We are currently aware of 18

transactions that have taken place over the past three months,

but expect a fi nal tally approaching 25 deals. This compares to

33 deals last quarter and 32 transactions in the fi rst quarter of

2012.

• Preliminary deal volume for the third quarter currently stands

at just over $76 million. We expect the fi nal total to approach

$105 million. This compares to a total deal volume of just under

$160 million posted during the second quarter and just under

$172 million in sales transacted during the fi rst quarter of 2012.

• The average price on the mid-box deals we have tracked that

closed during the third quarter currently stands at $125 per

square foot. This compares to an average of $118 per square

foot during the second quarter and $122 per square foot during

the fi rst quarter of 2012. One year ago, this metric also stood

at $122 per square foot.

• The average capitalization rate on junior box deals that closed

during the third quarter was 7.7%. This refl ects a slight increase

from the average cap rate of 8.2% posted during the second

quarter and the 8.0% rate of the fi rst quarter. Yet, exactly

one year ago it stood at exactly the same place; 7.7%. This

number had been decreasing thanks to the fact that the pool of

distressed mid-boxes had slowly been shrinking. However, our

anticipation is that the pendulum will begin swinging the other

way in 2013 as this property type faces higher vacancy and risk

levels.

• Grocery store consolidation will weigh on mid-box fundamentals

in 2013. While there will be a few opportunistic retailers

expanding in this environment, it won’t be enough to absorb the

space that will be returned to the marketplace next year. Look

for increasing overall vacancy and stagnant rental rate growth,

at best.

$50

$75

$100

$125

$150

$175

$200

$225

$250

$275

$300

5%

6%

7%

8%

9%

10%

11%

12%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012


Mid-Box Retail PropertiesAverage Cap Rate & Sale Price (PSF)

$0

$50

$100

$150

$200

$250

$300

5%

6%

7%

8%

9%

10%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012


Junior Box Retail PropertiesAverage Cap Rate & Sale Price (PSF)





• Our preliminary data for the third quarter of 2012 indicates that

investment sales activity for mega-box retail properties actually

increased during the third quarter of 2012. We are currently

aware of nine transactions that have taken place over the past

three months, but expect the fi nal tally to include as many as

twelve total deals. This compares to nine deals that closed

during the second quarter of 2012 and twelve transactions in

the fi rst.

• Our preliminary deal volume for the third quarter currently stands

at just over $100 million, with a likely fi nal tally approaching

$125 million. This compares to a total deal volume of just over

$64.1 million posted during the second quarter and just under

$53.5 million in sales transacted during the fi rst quarter of

2012.

• The average price on the mega-box deals we have tracked in the

third quarter was $117 per square foot. This quarter, the sale of

a new Lowe’s in the San Francisco Bay Area and a new Walmart

Supercenter in Southern California’s La Habra community both

helped to skew averages upward. Today’s average of $117 per

square foot compares to an average of $74 per square foot

during the second quarter and just $52 per square foot during

the fi rst quarter of 2012. While our average price per square

foot metric has been skewed upward by some recent Class A

mega-box sales, the fact is that pricing in general for mega-box

properties has been fl at to negative in most markets.

• The average capitalization rate on closed mega-box deals during

the third quarter was 6.4%. Third quarter 2012 activity has

been a bit of an anomaly with brand new product with long-term

leases to the most desired tenants taking place while we saw

few deals with hair on them. This quarter’s low average of 6.4%

compares to an average cap rate of 6.3% last quarter (same

phenomena, different quarter) and 7.7% in the fi rst quarter of

2012. In general, top properties with the best occupancy are

moving at 7.0% cap rates or below, but nearly everything else

is trading above—often signifi cantly above—that rate. The

problem is that most of the problematic properties are simply

not moving at all, which is why the average numbers appear to

refl ect cap rate compression when what is happening is that only

the best properties are moving at all.

• Overall fundamentals for mega-boxes will only deteriorate in the

near-term. There are extremely few active users in this size range

and many of them prefer to work with build-to-suits rather than

second-generation space. Meanwhile, grocery consolidation and

downsizing from major users will return more vacant space to

the market in 2013. Pricing, even for the best quality stabilized

properties with long-term leases in place, will be under extreme

downward pressure.

$0

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4%

5%

6%

7%

8%

9%

10%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012


Mega Box Retail PropertiesAverage Cap Rate & Sale Price (PSF)

Big Box Retail Trends—Mega-Box Properties

(80,000 SF +)


Single Tenant Big Box Retail MarketUS Northeast Region Select Major Sale Transactions

Single Tenant Big Box Retail MarketUS Southern Region Select Major Sale Transactions


Junior Boxes (20,000 - 40,000 SF)

LA Fitness 340 S. 25th St, Easton, PA 38,532 04/2012 $8.43 M $219 9.0%

Savers 3701 McKinley Pkwy, Buffalo, NY 21,525 03/2012 $3.40 M $157 8.5%

Mid-Boxes (40,000 - 80,000 SF)

Best Buy South Bay Center SC, Boston, MA 45,453 08/2012 $21.00 M $462 7.0%

ShopRite 12028 Cherry Hill Rd, Silver Spring, MD 64,626 06/2012 $13.78 M $213 6.4%

Best Buy 30 Andrews Dr, Little Falls, NJ 45,000 04/2012 $12.70 M $283 8.0%

Whole Foods 340 River St, Cambridge, MA 40,000 02/2012 $12.20 M $305 5.8%

LA Fitness 5466 Hadley Rd, South Plainfi eld, NJ 45,000 06/2012 $9.84 M $219 8.5%

Mega-Boxes (80,000 SF +)

Lowe's 3206 Peach Orchard Rd, Augusta, GA 135,197 09/2011 $15.00 M $111 7.3%

BJ's Wholesale Club 495, Hubbard Ave, Pittsfi eld, MA 85,176 02/2012 $14.70 M $172 7.2%


Junior Boxes (20,000 - 40,000 SF)

Best Buy 5916 W TX 289 Loop, Lubbock, TX 30,315 03/2012 $5.70 M $188 8.0%

Northern Tool & Equipment 1625 Patton Ave, Asheville, NC 25,454 05/2012 $3.93 M $154 8.5%

Dollar General Market Carter Blvd & Commonwealth Ave, Polk City, FL 20,707 05/2012 $3.64 M $176 7.9%

Staples 3155 Columbia Blvd, Titusville, FL 23,942 04/2012 $3.31 M $138 9.6%

Dollar General Market 1313 W 3rd St, Jackson, GA 24,750 05/2012 $2.70 M $109 8.3%

Mid-Boxes (40,000 - 80,000 SF)

Nordstrom Rack Walter's Crossing SC, Tampa, FL 44,925 04/2012 $11.99 M $267 7.4%

Best Buy 4001 W 20th Ave, Hialeah, FL 55,880 03/2012 $10.64 M $168 8.5%

Carmike Cinema 416 Exchange Blvd, Bethlehem, GA 45,286 03/2012 $8.00 M $177 9.1%

Gold's Gym 2360 W Kenosha St, Broken Arrow, OK 40,961 08/2012 $6.80 M $166 8.5%

Food City 4100 Cool Springs Rd, Morristown, TN 47,800 03/2012 $4.69 M $98 9.0%

Winn-Dixie 740 N Schillinger Rd N, Mobile, AL 53,574 04/2012 $4.25 M $79 9.5%


Kohl's Marketplace at Cumming SC, Cumming, GA 86,584 08/2012 $8.50 M $98 8.0%





Junior Boxes (20,000 - 40,000 SF)

Golfsmith 2020 Butterfi eld Rd, Downer's Grove, IL 25,012 02/2012 $5.75 M $230 7.8%

HH Gregg Appliances 2757 E 81st Ave, Merrillville, IN 32,961 02/2012 $4.96 M $144 8.7%

Marsh Supermarket 11865 Hamilton Avenue, Cincinnati, OH 32,117 07/2012 $3.70 M $115 10.0%

HH Gregg Appliances Joliet Mall, Joliet, IL 23,112 02/2012 $2.83 M $122 8.7%

Mid-Boxes (40,000 - 80,000 SF)

Pick N Save 2633 S Business Dr, Sheboygan, WI 70,000 09/2012 $14.12 M $202 7.7%

LA Fitness 201 Ogden Falls Blvd, Oswego, IL 45,000 03/2012 $9.20 M $205 8.8%

Home Depot 99 NE Northtown Dr, Blaine, MN 72,167 07/2012 $6.65 M $92 5.8%

Kohl's 590 W 300 N, Warsaw, IN 68,336 03/2012 $6.50 M $95 6.7%


Shopko 2320 Lineville Rd, Green Bay, WI 80,000 08/2012 $9.70 M $121 8.1%

Kmart Imperial Plaza SC, Clinton Township, MI 87,543 02/2012 $3.23 M $37 10.0%


Junior Boxes (20,000 - 40,000 SF)

24 Hour Fitness One Pacifi c Plaza, Huntington Beach, CA 36,000 05/2012 $13.80 M $383 7.1%

PetSmart East Hills Village SC, Bakersfi eld, CA 34,879 03/2012 $4.70 M $135 7.8%

Goodwill18901 Soledad Canyon Rd, Canyon Country,

CA21,800 06/2012 $4.51 M $207 7.0%

Smart & Final 3400 White Lane, Bakersfi eld, CA 20,815 07/2012 $4.01 M $193 7.5%

Mid-Boxes (40,000 - 80,000 SF)

Burlington Coat Factory Bristol & Segerstrom Plaza SC, Santa Ana, CA 58,450 06/2012 $12.10 M $207 8.5%

Whole Foods 900 Reichart Ave, Novato, CA 40,000 04/2012 $23.00 M $588 5.8%

Sports Authority Town Gate Crossing SC, Moreno Valley, CA 40,000 02/2012 $7.85 M $196 8.3%

In Shape Health Club 1313 S Mooney Blvd, Visalia, CA 43,279 07/2012 $6.15 M $142 8.9%


Lowe's San Bruno Town Center SC, San Bruno, CA 106,387 07/2012 $33.00 M $310 5.7%

Forever 21 Montebello Town Center SC, Montebello, CA 87,061 05/2012 $20.75 M $238 6.3%

Sam's Club Woodmen Commons SC, Colorado Springs, CO 128,065 01/2012 $17.30 M $135 7.3%

Walmart 1000 E Imperial Hwy, La Habra, CA 103,000 08/2012 $16.50 M $160 5.6%

Single Tenant Big Box Retail MarketUS Midwest Region Select Major Sale Transactions

Single Tenant Big Box Retail MarketUS West Region Select Major Sale Transactions




Single-Tenant Industrial Investment Trends

• Our preliminary data for the third quarter of 2012 indicates that investment

sales activity for single-tenant industrial investment properties decreased during

the third quarter of 2012. We are currently aware of 206 transactions that have

occurred over the past three months and expect our fi nal deal tally to reach 275

total deals. This would compare to 429 transactions during the second quarter

of 2012 and 395 deals that closed during the fi rst quarter of this year.

• Preliminary deal volume for single-tenant industrial investment sales during the

third quarter currently stands at just over $1.0 billion, and we expect our fi nal

tally to approach $1.3 billion. This compares to a total deal volume of $1.2

billion posted in the second quarter and $972 million in sales transacted during

the fi rst quarter of 2012.

• The average capitalization rate on deals that closed during the third quarter was

6.9%. But this number has been skewed downward due to a few exceptional

deals. In general, we are still seeing quality properties trading in the 7% range.

This quarter’s average compares with an average of 7.0% posted last quarter

and 7.4% during the fi rst quarter of this year.

• Our year-to-date totals for the fi rst nine months of 2012 indicate that single-

tenant industrial buyer activity breaks down as follows; private investors

accounted for 50% of all deals (compared to 40% last year), institutional

investors accounted for 23% of all activity (down from 28% in 2011), REITs

accounted for 18% (against 13% last year) while foreign investors, users and

unknown buyer types accounted for the remaining 9% of activity.

• Demand from private investors has been on the rise. They have accounted for

half of all the deals transacted so far this year, compared to 40% last year.

REIT deal activity is also up; they accounted for 18% of all the deals transacted

so far this year, compared to 13% last year. Institutional activity, however, has

fallen slightly. Institutional buyers accounted for 28% of all deals in 2011, but

just 23% so far in 2012.

$0

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5%

6%

7%

8%

9%

10%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012


Single Tenant Industrial PropertiesAverage Cap Rate & Sale Price (PSF) Trend


Industrial Fundamentals

On The Upswing

Industrial properties have often been overlooked

in favor of their more glamorous retail cousins. But

despite the fact that they don’t see the same levels

of demand as drug stores or fast food buildings,

a modern distribution building with a long-term

lease in place to FedEx can be every bit as secure

and lucrative an investment as a well-situated

McDonald’s. Of course, even in the healthiest of

markets, industrial properties tend to trade at higher

cap rates than most retail net-leased properties. This

is primarily because the shorter lease terms typical

of industrial users but this had been exacerbated

since the beginning of the downturn by concerns

over industrial fundamentals.

The good news is that fundamentals are showing

marked improvement nationally. Of the 67 major

U.S. industrial markets that Cassidy Turley tracks,

46 reported growth during the second quarter (third

quarter numbers were not available at the time

that this report went to press) with some markets

reporting relatively tight vacancy levels of 7.0% or

less. Among the tightest industrial markets were;

Albuquerque (6.9%), Anaheim/Orange County

(2.8%), Denver (7.0%), Honolulu (2.2%), Houston

(6.6%), Indianapolis (4.2%), Los Angeles (5.5%),

Miami (6.1%), New York (3.8%), Long Island

(4.7%), Oklahoma City (6.6%), Omaha (4.3%),

Salt Lake City (2.1%) and Seattle (5.8%). The

trend towards decreasing vacancy should continue

to increase as the economy slowly improves and

industrial development remains extremely low and

almost entirely focused on build-to-suit projects.

The completion of the Panama Canal expansion in

2014 will steadily have a positive impact on demand

in port cities over the next couple of years as well.

These factors, as well as an improving lending climate

and an increased willingness of investors to seek out

higher risk/higher reward properties will bode well

for single-tenant industrial investment demand in

2013. Improving vacancy and rental rate growth will

help to contribute to an overall rise in investment

pricing and generalized cap rate compression over

the next year. Whereas traded industrial properties

averaged cap rates in the 8.0% range as recently as

twelve months ago, rapidly improving fundamentals

are already driving prices up and cap rates down.

Quality product with strong tenancy in place moving

in most markets with cap rates in the 7.0% range,

though we have seen lower in the best performing

U.S. markets. Meanwhile, we continue to see vacant

or distressed assets trading with cap rates of 9.0%

or more.

15

Single Tenant Industrial Market US Northeast Region Select Major Sale Transactions


FedEx Ground 622 Route 303, Blauvelt, NY 142,139 04/2012 $46.50 M $327 7.5%

Kmart Distribution Center 1475 Nitterhouse Rd, Chambersburg, PA 862,450 08/2012 $44.80 M $52 10.3%

Navistar Parts 105 Steam Boat Blvd, Manchester, PA 390,000 02/2012 $21.82 M $66 7.1%

FedEx Freight 2 Boon Dr, North Chili, NY 111,865 03/2012 $19.74 M $176 7.7%

Crown Cork & Seal 8801 Citation Rd, Roseville, MD 156,797 07/2012 $10.25 M $65 6.0%

FedEx Ground 7500 Birkmire Dr, Fairview, PA 64,401 07/2012 $6.65 M $103 7.8%

Single Tenant Industrial Market US Southern Region Select Major Sale Transactions


Williams Sonoma 7755 Polk Ln, Olive Branch, MS 1,106,876 08/2012 $52.40 M $47 7.9%

Quaker Oats 747 Douglas Hill Rd, Lithia Springs, GA 913,000 04/2012 $40.00 M $44 6.9%

Southwest Distribution Center 5450 W Kiest Blvd, Dallas, TX 500,000 06/2012 $18.17 M $36 6.4%

Deerwood Glen Business Park 405 Deerwood Glen Dr, Deer Park, TX 160,000 07/2012 $17.80 M $111 6.7%

Atlanta Industrial Park 3755 Atlanta Industrial Pky N, Atlanta, GA 407,981 08/2012 $11.30 M $28 8.9%

Lowe's Distribution Center 510 Hester Dr, White House, TN 252,000 03/2012 $8.00 M $32 8.3%

FedEx Ground 7 American Woodmark Dr, Humboldt, TN 50,824 07/2012 $5.33 M $105 7.8%

Single Tenant Industrial Market US Midwest Region Select Major Sale Transactions


Clorox 2400 Dralle Rd, University Park, IL 1,350,000 03/2012 $64.25 M $48 6.6%

Crate & Barrel 1860 W Jefferson Ave, Naperville, IL 827,268 02/2012 $46.35 M $56 6.5%

The Pillsbury Company 2089 Pillsbury Dr, Geneva, IL 359,499 05/2012 $33.10 M $92 7.7%

Edward Don & Co 9801 Adam Don Pkwy, Woodridge, IL 362,500 07/2012 $27.10 M $75 6.2%

Attachment Distribution Center 2900 Research Pkwy, Davenport, IA 552,960 05/2012 $26.10 M $47 8.8%

FedEx Ground 2929 Halvor Lane, Superior, WI 56,951 08/2012 $9.10 M $169 7.7%

Single Tenant Industrial Market US West Region Select Major Sale Transactions


Fowler Distribution Center 800 N 75th Ave, Phoenix, AZ 418,388 08/2012 $90.29 M $71 5.4%

Midway Distribution Center 11101 Etiwanda Ave, Fontana, CA 611,968 04/2012 $42.00 M $62 5.1%

Mid-Point Technology Park 550 Broadway Ave, Redwood City, CA 71,200 04/2012 $28.00 M $393 6.0%

Tolleson Distribution Center 9704 W Roosevelt St, Tolleson, AZ 302,640 06/2012 $15.16 M $50 6.0%

American Tire Distributors 955 Aeroplaza Dr, Colorado Springs, CO 125,060 09/2012 $8.31 M $66 7.4%

Boart Longyear 7103 W Augusta Ave, Glendale, AZ 19,841 04/2012 $4.49 M $216 7.4%

16

About Cassidy Turley Cassidy Turley is a leading commercial real estate services provider with more than

3,600 professionals in more than 60 offi ces nationwide. The company represents

a wide range of clients—from small businesses to Fortune 500 companies, from

local non-profi ts to major institutions. The fi rm completed transactions valued at

$22 billion in 2011, manages 455 million square feet on behalf of institutional,

corporate and private clients and supports more than 28,000 domestic corporate

services locations. Cassidy Turley serves owners, investors and tenants with a

full spectrum of integrated commercial real estate services—including capital

markets, tenant representation, corporate services, project leasing, property

management, project and development services, and research and consulting.

Cassidy Turley enhances its global service delivery outside of North America

through a partnership with GVA, giving clients access to commercial real estate

professionals in 65 international markets. Please visit www.cassidyturley.com for

more information about Cassidy Turley.

Andy BogardusSan Francisco

415.677.0421

[email protected]

Our Net Lease Services team understands the complexities and dynamics of the Net Lease marketplace. Our national platform

is managed by an advisory committee composed of industry leaders from across the country.

Please contact any of the following advisory committee members for more information on Cassidy Turley Net Lease Investment Services.

Visit www.cassidyturley.com for more information on the full range of Cassidy Turley commercial real estate services.

Chuck KleinSan Diego

858.546.5473

[email protected]

Garrick BrownDirector of Research

San Francisco

916.329.1558

[email protected]

For more information regarding

this report, contact:

Ric RussellSan Francisco

415.781.8100

[email protected]

Bob SannerSan Francisco

415.677.0439

[email protected]

Core Services

• Tenant Representation

• Project Leasing

• Property Management

• Project & Development Services

• Capital Markets

- Debt Placement

- Investment Sales

- Note Sales

- Structured Finance

• Corporate Services

- Facilities Management

- Portfolio Administration

- Project Management

- Strategic Consulting

- Transaction Management

Practices and Specialties

• Auction Services

• Distressed Assets

• Financial Advisory

• Food and Beverage

• Golf and Resort Properties

• Government Contracting

• Government Services

• Healthcare

• Higher Education

• Hospitality

• Law Firm

• Life Sciences

• Location Advisory and Incentives

• Mission Critical

• Net Lease

• Not-for-profi t

• Private Client

• Supply Chain

• Sustainability Services

Real Estate

• Offi ce

• Industrial

• Retail

• Multi-family

• Land

Doug LongyearSan Francisco

415.677.0458

[email protected]

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