NNN Lease Market News
The U.S.
retail investment sales market staged a strong performance last year as
property sales rose 32 percent from 2010 to nearly $61 billion.
Prices
for power centers and neighborhood centers increased 9.1 and 7.2 percent, to
$148 and $135 per square foot, respectively.
While
the highly coveted single-tenant net-lease investment sector continued to gain
momentum, shopping centers and other multi-tenant properties captured nearly 68
percent of total sales, for which cap rates compressed by 40 basis points.
How are
single-tenant, net-leased investments different from multi-tenant buildings?
Multi-tenant buildings have more than one
tenant, and as a result, owners and landlords must juggle multiple leases that
begin and end at different times. These leases are rarely longer than seven
years. That means that the building's financial performance is vulnerable to
the ups and downs of the market.
Many
net-lease investors have previously owned other types of real estate but are
looking for an investment that requires less maintenance and supervision. For
example, many apartment investors end up selling their high-maintenance
properties and then reinvesting the sale proceeds in single-tenant, net-leased
retail properties, as do many land owners who have previously never received
any income or tax benefits from their property.
Who can
invest in single-tenant, net-leased properties?
Net
leased properties are appealing to a wide variety of buyers, from high net
worth individuals to partnerships to large institutional investors like real
estate investment trusts, life insurance companies and pension funds. Net
leased properties also are very attractive to investors who need to do 1031
tax-deferred exchanges, or 1031 exchanges for short.
What are
the benefits of investing in single-tenant, net-leased properties?
Many
people consider single-tenant, net-leased properties as bond-like investments
because of their stable, predictable returns. Because tenants commit to
long-term leases, there's very little re-leasing risk. Moreover, single-tenant,
net-leased investments can be tailored to an investor's risk-reward
expectations by choosing tenants with different credit profiles. For example,
some tenants are rated by national credit ratings agencies while other tenants
have only their previous financial performance to recommend them.
When is
the best time to invest in a single-tenant, net-lease property?
Net-leased
properties are like all-weather tires. They are good investments in both good
and bad economic times and in hot and cold real estate markets. Here's why: a
single-tenant net lease is guaranteed by a long-term lease at pre-set rental
rates. As an owner, you know exactly who will be a tenant in your building, how
long that tenant will be there and exactly how much rent they will pay you.
That means you will derive a steady income from your investment, regardless of
how the economy or real estate market is performing.
Gateway
investment markets New York, Northern New Jersey, Los Angeles, Chicago,
Washington, D.C., South Florida and Boston dominated this investment activity.
