Sale-leasebacks also supported overall growth, stockpiling equity and restructuring existing debt. Fortune 500 companies sold regional and national headquarters. Industrial conglomerates sold large distribution centers and portfolios of assets, respectively. Municipalities sought to lower deficits and balance budgets with government service assets by heading to the sale leaseback table.

1. NET LEASE ADVISOR
YOUR SOURCE FOR INVESTMENT REAL ESTATE™
First Quarter 2011
SALE LEASEBACKS
A Franchise Owner Parachute
Calkain Announces
2010 Award Winners
INDUSTRY EXPERT
OPINION REPORT
By CALKAIN RESEARCH
COLLISION COURSE:
Cap and Interest Rates
COMPANIES, INC.

2. SALE LEASEBACKS
A Franchise Owner Parachute
B oth investor appetite and seller tenant necessity sparked
an uptick of sale leaseback activity in 2010. A growing
number of franchisees exercised this option for the first
time since 2007 in addition to corporate-owned entities as a
parachute to continue operations. Sale-leasebacks also sup-
Let’s look at some of the franchise considerations and
points of interest when contemplating a sale leaseback:
» Ability for immediate cash infusion for operations
ported overall growth, stockpiling equity and restructuring ex- » Use of equity for growth and expansion
isting debt. Fortune 500 companies sold regional and national
headquarters. Industrial conglomerates sold large distribution » Continuity and uninterrupted operations and control
of property
centers and portfolios of assets, respectively. Municipalities
sought to lower deficits and balance budgets with government » Increase financial flexibility with creation of self fi-
service assets by heading to the sale leaseback table. nancing and risk allocation
» Loss of depreciation but gain lease payment deduc-
Perhaps, the sector best realizing the value added with sale tions- proper structure of lease
leasebacks were single and multi- unit franchise owners. Real » Some seller tenants have depleted their depreciation
estate could be a large portion of a franchisee’s equity invest- of property and thus there is less tangible and ac-
ment and it may ultimately counting benefit for retaining property
hinder their growth strategy.
By: Teal Henderson With lenders not availing » Allows for restructuring, improving and simplifying
balance sheets
themselves as regularly to
operators with smaller bal- » Bargaining opportunity for owner on lease options:
ance sheets, then a monetization of the real estate currently in buybacks, renewals, go dark options, assignments etc
place could be an alternative solution option. » Preparation for a timed exit
» Ability for multi unit owners to sell numerous assets as
Since the economic downturn hit all sectors, many single and a portfolio and negate multiple transaction fees
multi unit franchise owners found themselves facing closures
and dissolution. Property ownership was no longer viable to » Lowering costs with rent payments possibly lower
than mortgage payments
the current business plan. Sale leasebacks have given extend-
ed life to the franchisees needing immediate capital, flexibility
and time to ride out the constriction or leap on sale priced
expansion assets. There are numerous factors for franchise owners to consider
with regard to transacting a sale leaseback, including the tax
In 2010, sale leasebacks were used frequently by franchise basis and possible penalties, corporate requirements and per-
owners for alternative financing vehicles to fund new store sonal guaranties potentially necessary to close the deal. Prop-
openings, maintain operation of current stores or invest in core er lease structuring is key to the longevity of the site as well
businesses. During peak market conditions from 2005 – 2007, as creating a salient asset for the ultimate NNN lease investor/
franchise sale leasebacks were some of the most coveted as- buyer. 
sets for investors. However, during the downturn, some were
merely in a survival mode using equity to fund payroll and
maintain inventory. The ability to redeploy otherwise illiquid
assets was and is key for many franchisee’s survival and for oth- Teal Henderson | Associate
ers a well-timed growth and expansion opportunity. Multi-unit thenderson@calkain.com
owners eliminated property ownership to simplify accounting Phone: 813.282.6000
and negate cross funding between stores with varied levels of
sales and success and ownership structures.
CALKAIN COMPANIES, INC. NET LEASE ADVISOR First Quarter 2011

3. COLLISION COURSE:
Cap and Interest Rates
R ates…our world is full of them.
With cap rates falling and inter-
est rates rising, just how much
lower can the spread between these
two figures go before investors begin
as fast as dollar store concepts are ex-
panding.
It should come as no surprise to those
actively in search of top tier assets
transactions to evaluate the driving
factor pushing cap rates lower, the
most apparent cause is the basic eco-
nomic principle of supply and demand.
to push back? Consumer confidence over the past year that cap rate com- On the demand side, there has been a
has crept back to relatively normal lev- pression is very real. According to rise in activity from private individu-
els, lowering demand for safe-haven US Calkain’s 4th Quarter 2010 cap rate als searching for safe, passive invest-
treasury report, net leased cap rates fell any- ments, while turmoil abroad has boost-
bills and where from 50 to 125 basis points ed the flow of foreign capital into US
By: Patrick Nutt s u b s e - during 2010, depending on asset class assets. At the same time institutional
quently and sector. Walgreens, often used as class investors, such as public and pri-
driving an industry barometer to gauge the vate REIT’s, are raising funds as fast as
the yield in an inverse direction. Com- overall world of cap rates, were real- they can place them. Conversely, the
mercial real estate seems to have bot- izing average cap rates near 8% as of supply side of the equation has shrunk
tomed out. Cap rates for net lease in- the end of 2009. 2011 unfolds, trans- drastically. (As the recession sunk in,
vestments stabilized in early 2010 and actions for new construction Wal- tenants commonly occupying these
rapidly compressed over the following greens are now nearing the 7% mark, net leased assets contracted, closing
12 months. As the economic world has with those assets in highly desirable underperforming stores and choos-
changed over the past few years, rates geographic areas trading in the upper
and their relationships have changed 6% cap rate range. As we dissect these Continued...
CALKAIN COMPANIES, INC. NET LEASE ADVISOR First Quarter 2011

4. CALKAIN RESEARCH
INDUST RY E X P E RT OPINION R EPORT
M
ichael Abrams is Pres-
ident of Foulger Pratt
Rockledge Medical
Properties, LLC, in Rockville MD,
a major medical office building
development company in the
metropolitan Washington DC
area.
AS A DEVELOPER, WHAT IS YOUR PREDICTION OF DEMAND FOR NEW
MEDICAL CONDOMINIUMS IN THE WASHINGTON METRO AREA FOR
Formerly, Mr. Abrams was a THE NEXT YEAR OR TWO?
principal at Rockledge Realty ABRAMS: There are several conflicting forces impacting the medical condo
market over the immediate and near term. On the positive front, certain fi-
Partners. His twenty-year ca- nancing markets are becoming very attractive with practices able to borrow
reer represents a cross section funds at about 5% and up to 90% of the project cost. This compares favorably
with the cost to lease. Physician practices have also experienced generally
of experience in real estate de- good conditions compared to other aspects of the economy which have suf-
fered worse over the past few years. For example you don’t hear about large
velopment, acquisition, finance layoffs by hospitals or physician groups. However, healthcare uncertainty -
and management on both a while better since the passage of the 2010 healthcare bill - still permeates the
decision making process for individual practitioners.
principal and third party basis.
Prior to forming Rockledge, he AS YOU KNOW, THERE ARE SIGNIFICANT SHIFTS IMPACTING MEDICAL
DELIVERY SYSTEMS: OUTSOURCED MEDICAL SERVICES FROM HOSPI-
served as founder and Presi- TALS, THE ADVANCING AGE OF THE BABY BOOMER GENERATION, THE
dent of Carey Winston Realty RECENT HEALTHCARE LEGISLATION. CAN YOU COMMENT ON THE IM-
PACT OF THESE TRENDS ON DEVELOPING MEDICAL BUILDINGS?
Advisors, an asset management
ABRAMS: We see a trend toward consolidating practice groups into larger
and investment advisory sub- sizes and toward greater hospital employment of physicians. Both of these
sidiary of the largest full service trends point away from the condo model as a vehicle for physician occupan-
cy. Larger groups tend not to own in this manner and hospitals tend to own
real estate company in Metro- entire buildings or lease space. We anticipate a greater orientation by health
care systems to delivering services off campus in integrated settings where
politan Washington, DC. a variety of medical services are provided in a more unified way rather than
a building with a collection of unrelated physicians who may or may not be
part of an integrated approach to care.
CALKAIN COMPANIES, INC. NET LEASE ADVISOR First Quarter 2011

5. CALKAIN RESEARCH
GIVEN THESE TRENDS, WHAT IS YOUR PREDICTION OF DE-
MAND FOR NEW FREE-STANDING OUTPATIENT, URGENT
CARE, AND MEDICAL CLINIC FACILITIES?
ABRAMS: I think there will be a greater demand for these services
but they will not be isolated from other services such as primary
care imaging and other major practice types. Providers are being
incentivized to provide “accountable care organizations” which
are networks of hospitals and doctors with financial responsibility
for their care. This will likely reshape how doctors and hospitals
physically organize and where they will locate. We anticipate a
much more “retail” approach to the delivery of services under this
model. 
Winston Orzechowski | Research Director
worzechowksi@calkain.com
Phone: 703.787.4714
NOTABLE MEDICAL RECENT MEDICAL
TRANSACTIONS CLOSING
» GW Medical Faculty Associates looks ALL PEDIATRICS | LORTON, VA
to add 450 doctors and buy 120,000 SF Price: $1,950,000 | Cap Rate: 7.67% Closed 4/2010
» Inova Health System to add 200 more AFFORDABLE CARE | AUSTIN, TX
doctors Price: $1,400,000 | Cap Rate: 9.40% Closed 11/2010
» MedStar completes purchase of AFFORDABLE CARE | ANDERSON, SC
Cardiology Associates Price: $720,000 | Cap Rate: 10.34% Closed 11/2010
» Kaiser Permanente buys vacant build- AFFORDABLE CARE | N. CHARLESTON, SC
ings in Tysons Corner and Gaithersburg Price: $1,047,961 | Cap Rate: 9.40% Closed 2/2011
CALKAIN COMPANIES, INC. NET LEASE ADVISOR First Quarter 2011

6. CASE
STUDY
T
he strong investment sales market in the Washington DC region often makes it challenging for private investors to find
affordable, passive investment properties. The niche sector of medical office condos are becoming a popular option for
private investors and 1031/1033 exchange buyers seeking income-producing assets priced under $2M. Medical office
condos carry strong characteristics in terms of strength of tenant, lease structure and real estate fundamentals.
Calkain was recently engaged by a medical office building developer to sell triple net-lease medical office condos in Fairfax County, VA.
The successfully completed transaction benefited all parties.
SITUATION: The original developer of a new condo-
minium medical office building (MOB) recognized that he could
achieve maximum return on his investment by selling the individ-
ually leased condos to private investors. The property was well-
located in Lorton, VA and select units had recently been leased on
a long-term, triple net (NNN) basis to stable tenants.
OUTCOME: Calkain actively marketed the medical con-
do property to our extensive database of triple net lease buyers
and local investors. The property was introduced to purchasers
who understood the unique opportunity and characteristics of
medical office condos. We highlighted the key attributes of the
asset and were able to generate significant buyer interest.
ANALYSIS: The property possessed what we consider
to be key attributes of a core medical office investment condo:
landlord-friendly NNN lease terms; a strong and stable tenant;
and excellent real estate fundamentals. The condo was leased to
a successful pediatricians group and the building is an integral
part of a community town center. Priced just under $2M, the asset
was attractive to multiple investors.
RESULT: Calkain successfully identified an investor who had
an immediate 1031 requirement, and was capable of completing
the transaction in a timely fashion. The procured buyer was a local Jerry Burg | Managing Director
investor who knew the new development and appreciated the jburg@calkain.com
Phone: 703.787.4714
reputation and strength of the pediatric practice tenanting the
condo. The seller achieved his objective of maximizing returns Andrew Fallon | Associate
and the buyer satisfied a 1031 exchange by acquiring a stable in- afallon@calkain.com
come producing asset in the Washington DC metro area.  Phone: 703.787.4714
CALKAIN COMPANIES, INC. NET LEASE ADVISOR First Quarter 2011

7. Continued...
ing to remodel existing locations over expanding
into new sites.) According to research from the In-
Calkain Companies, Inc.
ternational Council of Shopping Centers, the U.S.
shopping center industry grew at its slowest pace
in 40 years, expanding just 0.2% in comparison to
2006 growth of 3%. While discount retailers such
as Dollar General continue to expand, other peren- Announces 2010 Award
Winners
nial net lease tenants remain hesitant. Even Wal-
greens lowered their 2011 openings to just 50% of
their 2010 figure. All signs point towards a general
lack of supply throughout 2011.
While cap rates were falling, many speculated on
the potential negative ramifications as benchmark
10-year treasury yield rose rapidly, gaining 75 basis
points in the last two months of 2010. As of early
February, that rate had increased another 25bps to
3.65% - the highest level since early 2010 - howev-
er we continue to remain at historical lows across
the board. Consider this, from July 1958 until the
beginning of the recession in 2008, there has only
been a two month period of time where the 10-
year US Treasury provided a lower yield than today.
In short, even with the recent rise in the yield on Left to Right: Andrew Fallon, David Sobelman, Jeff Bogart and Jonathan Hipp
the 10-year note, over the past 50+ years that yield
has been higher than where it stands today 98% of
the time.
There will always be a gap between yields for “risk
free” investments, such as the 10-year US Treasury
and alternative assets, such as net leased proper-
ties. Efficient markets utilize this higher yield or
C alkain Companies, Inc. is pleased to announce Jeff Bogart
and Andrew Fallon as 2010 recipients of the prestigious
“Top Producer” and “Rookie of the Year” awards, respec-
tively. Both have made invaluable contributions to Calkain and
represent the highest degree of professional merit.
spread the price risk into an investment. Histori-
cally, the risk premium for retail real estate assets Jeff Bogart, displaying grace and humility, commented “I need
hovers around 410 basis points according to New to thank the entire Calkain team – without their help, this
York based Real Capital Analytics. However, this wouldn’t be possible.” A first time winner, Bogart’s years of
spread has recently peaked at 540 basis points. As experience and commitment to success have helped elevate
net leased assets fall under a more conservative, Calkain to the position it enjoys today. Meanwhile, Fallon,
risk averse classification, they observe a lower risk demonstrating wisdom beyond his years, stated “This award
premium. Calkain’s Cap Rate report measures the represents a moment to savor but always build upon. Luckily
current spread for net leased assets, as of the end I am surrounded by the perfect people with which to do so”.
of 2010, near 470 basis points. The risk premium In one year with Calkain, Andrew Fallon has consistently ex-
has continued to shrink as cap rates continue to ceeded expectations and demonstrated an almost unequaled
fall, pushing closer to the historical norm. Howev- drive towards excellence.
er, they remain a far cry from the 250 basis point
spread observed at the peak of the market in 2007, Jonathan Hipp, Calkain President and Chief Executive Officer,
when 10 year US Treasury yields varied between added, “I am extremely happy for Jeff and Andrew. Their hard
4.10% to 5.10% and average cap rates were in the work and dedication are the building blocks Calkain’s success
low to mid 7% range. stands upon today. Calkain has always prided itself on its great
team and I can think of no better representatives of the foun-
History has shown that the spread between cap dation we have laid. ” 
rates and the treasury yield should thin out, but
I think as we’ve seen, that compression will most
likely be the move of both rates. Average cap rates
continue to compress due to general lack in sup- David Sobelman | Executive Vice President
ply. Treasuries will level out somewhere in the 4% dsobelman@calkain.com
range as the economy begins to heal and move Phone: 813.282.6000
forward.
Patrick Nutt | Assistant Vice President
pnutt@calkain.com
Phone: 813.282.6000
CALKAIN COMPANIES, INC. NET LEASE ADVISOR First Quarter 2011

8. At Calkain, our foresight and
performance are leading the
net lease investment industry.
NNN Realty Advisors
Urban Advisors
Institutional Advisors
Office/Industrial
1031/1033 Exchanges
Asset Management
COMPANIES, INC. Site Services
Tax Strategy
Sale Leaseback Program
Equity Placement
Research Division
C A L K A I N C O M PA N I E S , I N C .
CALKAIN COMPANIES, INC.N G T O N , D CN | T LLO R IS E A DM AS O L A N D | D E L A W A R E
WASHI E F EA DA | VI RY R First Quarter 2011