Fast Food Property Cravings Continue

The insatiable investor appetite for fast food restaurants persists, as evidenced by the increasing volume and average price of sales in 2013. Cap rates averaged 6.9% for fast food transactions in the third quarter of 2013, compared to an average of 6.5% in the second quarter, and 7% a year ago.  Upper-tier fast food properties are generally moving with cap rates below 6% nationally; with some higher quality assets in great locations with more desirable long-term tenancies in place (e.g., McDonald’s, Jack in the Box, Chick-Fil-A, In-N-Out) trading at sub-5% cap rates. Nationally, middle-tier fast food properties are averaging 6-8% cap rates, and lower-tier and/or value-add properties are  generally trading at cap rates above 8%. However, despite current demand, expect cap rates to increase by the latter part of 2014, as interest rates rise.