Cap rates have decoupled from the 10-year. The market is splitting in two. Trophy assets compressing. Everything else widening. Here's what to do about it.
Show Notes
Cap rates have officially decoupled from the 10-year Treasury. The old playbook is dead.
The market is splitting in two. On one side, trophy net lease assets are compressing hard. McDonald's ground leases in the high 3s to low 4s. Chick-fil-A and Chipotle right behind them. Scarcity of quality expanding tenants is driving the compression, not rate relief. Tractor Supply opened 40 new stores in Q1 2026 alone. When institutional capital, 1031 money, and private equity are all chasing the same limited pool, cap rates compress regardless of where the 10-year sits.
On the other side, dollar stores and drugstores are widening. Dollar stores are a supply problem. Drugstores are a business trajectory problem. CVS and Walgreens are actively shrinking footprints. Pharmacy disruption is real. Buyers are discounting credit ratings based on what the next 10 years look like.
The move? Stop benchmarking against headline cap rates. The rate environment won't bail you out. Underwrite tenant quality and business trajectory separately. Watch the Q3/Q4 maturity wall for forced sellers. And keep your broker relationships tight. The question isn't where the market is. The question is which side of the split your asset sits on.
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