THE NET LEASE CASUAL DINING

MARKET REPORT
Q1 2016
CORPORATE LEASED PROPERTIES
MEDIAN ASKING CAP RATE

Tenant

Q1 2016

Buffalo Wild Wings

5.90%

Chili's (GL)

5.00%

Hooters

6.00%

IHOP

6.00%

Outback Steakhouse

5.00%

Red Lobster

5.75%

Texas Roadhouse (GL)

4.75%

All Corporate Casual Dining

5.65%

GL = Ground lease

FRANCHISEE LEASED PROPERTIES

MEDIAN ASKING CAP RATE

Tenant

Q1 2016

Applebees

6.13%

Denny's

5.50%

IHOP

6.34%

TGI Friday's

6.75%

All Franchisee Casual Dining

6.30%

CASUAL DINING PROPERTIES

MEDIAN ASKING PRICE

Tenant

Median Price

All Casual Dining

$3,555,556

Applebees

$3,156,000

Buffalo Wild Wings

$3,800,000

Chili's

$1,900,000

Denny's

$2,709,091

Hooters

$3,295,652

IHOP

$3,589,000

Outback Steakhouse

$4,358,000

Red Robster

$4,503,732

Texas Roadhouse

$2,322,500

TGI Friday's

$3,865,278

MARKET OVERVIEW
Cap rates in the net lease casual dining restaurant sector were 5.75% in the
first quarter of 2016. Casual dining restaurant properties with corporately
guaranteed leases had cap rates of 5.65% while franchisee leased
properties were priced 65 basis points higher at 6.30%. Cap rates for casual
dining restaurant properties will vary depending on if the lease is guaranteed
by a franchisee or corporate operator. In the first quarter of 2016, franchisee
backed casual dining restaurants accounted for only 31% of the overall
supply of casual dining restaurants. Franchisee operated restaurants
were priced at a 65 basis point discount compared to corporate backed
restaurants. Additionally, cap rates for franchisee backed restaurants can
fluctuate depending on the financial strength and size of the franchisee.
Investor demand for single tenant casual dining restaurant properties can
be illustrated by the 43 basis point cap rate premium over the entire net
lease retail sector (6.18%). Net lease investors have targeted the casual
dining sector as it is one of the few net lease sectors that is e-commerce
resistant. Private and 1031 exchange buyers are attracted to casual dining
restaurant properties as they are frequently absolute triple net and feature
rental escalations during the primary lease term. Additionally, casual
dining restaurant properties feature recognizable tenants and are typically
located in highly visible locations in retail corridors. In the first quarter of
2016, private buyers accounted for 93% of all single tenant casual dining
restaurant transactions outside of portfolio sales. During the same time
period, REITs and institutional investors accounted for 75% of all portfolio
transactions involving casual dining restaurants.
Sale leaseback transactions by large corporate operators such as Darden,
Bloomin Brands and Bob Evans have been able to boost supply of single
tenant casual dining restaurant properties for sale. In the current low cap
rate environment, operators are able to unlock the value of their owned real
estate and are able to use the capital proceeds for repayment of debt or
stock buyback programs. The expectation is that the sale leaseback market
will remain active as operators will attempt to take advantage of the low cap
rate environment.
The single tenant net lease casual dining restaurant sector will remain
active as this asset type continues to attract private and 1031 exchange
investors. The rental escalations and absolute net lease language found
in the majority of the leases associated with casual dining restaurants are
attractive to private and 1031 buyers. Corporately guaranteed leases will
remain in the highest demand among private investors due to the strength
of credit associated with the assets. REITs and institutional investors will
continue to seek larger portfolios of casual dining restaurant properties via
sale leaseback transactions. Portfolio transactions typically allow economies
of scale and higher yields compared to acquisitions on a one-off basis.

www.bouldergroup.com

THE NET LEASE CASUAL DINING

MARKET REPORT
Q1 2016
SELECTED SINGLE TENANT SALES COMPARABLES
Sale Date

Tenant

City

Apr-16
Mar-16
Jan-16
Dec-15
Mar-16
Dec-15
Dec-15
Mar-16
Nov-15
Apr-16
Jan-16
Mar-16
Dec-15
Mar-16
Apr-16
Feb-16
Mar-16
Feb-16
Feb-16

Red Lobster
Outback Steakhouse
Outback Steakhouse
Golden Corral
On The Border
Golden Corral
Logan's Roadhouse
IHOP
Logan's Roadhouse
Hooters
IHOP
Hooters
Applebee's
Red Lobster
Applebee's
Texas Roadhouse (GL)
Buffalo Wild Wings
Buffalo Wild Wings
Denny's

San Jose
Surprise
Jacksonville Beach
Pompano Beach
Midwest City
Glendale
Orlando
Beavercreek
Dickson
Columbia
Albuquerque
Phoenix
Monroe
Danville
Delray Beach
Hadley
Olive Branch
Hanover
Tiffin

State

Price

Price/SF

Cap Rate

Lease Term Remaining

CA
AZ
FL
FL
OK
AZ
FL
OH
TN
SC
NM
AZ
GA
VA
FL
MA
MS
PA
OH

$7,370,000
$4,630,000
$4,200,000
$4,178,000
$3,900,000
$3,840,000
$3,800,000
$3,775,000
$3,602,000
$3,400,000
$3,200,000
$3,100,000
$2,700,000
$2,636,000
$2,525,000
$2,425,000
$2,166,000
$2,100,000
$1,450,000

$935
$744
$699
$378
$654
$317
$475
$776
$546
$660
$795
$499
$489
$479
$531
$338
$392
$386
$378

5.50%
5.32%
5.00%
6.05%
6.41%
6.88%
6.74%
6.04%
7.25%
7.55%
5.88%
5.50%
5.90%
5.90%
4.50%
5.36%
7.50%
6.19%
6.85%

23
15
15
12
15
20
10
20
13
10
12
10
20
19
6
10
3
12
20

CASUAL DINING MEDIAN ASKING CAP RATE BY REGION

6.05%

T
S
EA
H
T
R
NO

WEST
MOUNTAIN
5.43%

MIDWEST

5.70%

SOUTH
5.75%
5.75%

www.bouldergroup.com

THE NET LEASE CASUAL DINING

MARKET REPORT
Q1 2016
CASUAL DINING VS RETAIL NET LEASE
MARKET CAP RATES

MEDIAN ASKING CAP RATE BY

LEASE TERM REMAINING

Q1 2016
(Current)

Sector
Casual Dining Sector

5.75%

Retail Net Lease Market

6.18%

Casual Dining Premium (bps)

Lease Term Remaining

Cap Rate

20+

5.35%

15-19

5.75%

10-14

6.00%

5-9

6.45%

Below 5

6.95%

43

MEDIAN NATIONAL CLOSED CAP RATE

SPREAD

CASUAL DINING ASKING CAP RATE

BY GUARANTOR

Sector

Closed

Asking

Spread
(bps)

Corporate
Cap Rate

Franchisee
Cap Rate

Spread
(bps)

Casual Dining

5.56%

5.35%

21

5.65%

6.30%

65

FOR MORE INFORMATION

AUTHOR
John Feeney | Vice President
john@bouldergroup.com

CONTRIBUTORS
Randy Blankstein | President

Jimmy Goodman | Partner

Zach Wright | Senior Analyst

Scott Harris | Analyst

randy@bouldergroup.com

jimmy@bouldergroup.com

zach@bouldergroup.com

scott@bouldergroup.com

2016. 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.

www.bouldergroup.com