Net lease real estate investment trusts (REIT) are increasingly incorporating development into their external growth strategies, complementing traditional acquisition activity with projects that can offer attractive economics and favorable credit characteristics.
Key Takeaways
Development is becoming a recurring source of external growth. The sector’s approximately $2.9 billion pipeline remains modest relative to acquisition activity, but remains well above 2021 levels and increasingly complements traditional acquisitions and sale-leaseback growth.
Development economics compare favorably with acquisitions. Build-to-suit (BTS) projects generally provide yields that are 25 basis points (bps)-50 bps above acquisition cap rates and can create additional net asset value (NAV) as completed properties stabilize at lower market cap rates.
Credit risk appears manageable. Development programs represent roughly 3% of enterprise value, are largely focused on fully…
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