The net lease world is much bigger and more complicated than it looks.
Large and Competitive
Marketplace
One thing many folks don’t realize is the net lease marketplace is REALLY BIG. It was estimated that in 2022, there were nearly $78 Billion of these transactions in the US. These are comprised of Office & Industrial ($62B), followed by Retail ($16B). Although the volume of property is high, the competition is fierce. Publicly Traded REITs, Private Equity Companies, Family Offices & Professional Investors are all competing with Individuals and 1031 Exchange Investors to find the best properties and to buy them quickly. Knowing the intricacies of net lease is extremely important to quickly identify the best opportunities in this competitive marketplace.
Seemingly Simple, Thoroughly Complex
From 10,000 feet, net lease investments seem simple. One tenant, one lease, one parcel of land. 5% return for a decade. Easy enough. But there are many more considerations to a net lease investment than just credit, term and cap rate. The tenant’s overall business, single store performance and typical lease structure, coupled with the real estate trade area, demographic makeup and specific site characteristics all impact long-term value in different ways. Understanding the full picture can give you powerful insight to guide your investment decisions.
Retail Categories to Foretell
Auto Parts
Attributes
Investment grade credit, reasonable rents, flexible building and parcels.
Challenges
Not often prime positioning in markets,
easy to relocate, lots of competition.
Big Box
Attributes
Phenomenal credit.
Rare to move.
Challenges
Very large investments,
not many takers to re-tenant.
Cannabis
Attributes
Higher yields, sizeable companies, burgeoning industry.
Challenges
Huge rents, limited financing,
questionable locations.
Technology
Attributes
Excellent locations.
Challenges
Higher rents, subsidiary lease signatures.
Fuel & Convenience
Attributes
Strong credit, Premier new prototypes, prime locations.
Challenges
Healthy rents, questions surrounding emergence of electric cars.
Sporting Goods
Attributes
Covid proven essential business, solid companies, higher yield.
Challenges
Bigger price points, competing with Big Box on products, tough to backfill.
Dollar Store
Attributes
Investment grade tenants, long term leases, lots of new locations to invest.
Challenges
No increase leases, highly compressed cap rates, little residual in tertiary markets.
Farm/Rural
Attributes
Solid niche businesses, good credit, limited competition.
Challenges
Secondary/tertiary markets, far above market rents, very tough backfill.
Coffee
Attributes
Attainable price points, essential businesses with drive-thru, excellent operators.
Challenges
Small parcels, limited parking, some higher rents.
Restaurants
Attributes
Good sized buildings & parcels, prominent trade areas, excellent operators.
Challenges
Some high rents, questions surrounding older concepts, limited drive-thrus.
Pharmacy
Attributes
Blue chip essential business, hard corners, big parcels, and strong credit.
Challenges
Some astronomical rents, tough to reuse buildings, limited rental increases.
Medtail
Attributes
Fast growing, essential space, frequently prominent locations, reusable buildings.
Challenges
Varied credit profiles, frequent landlord responsibilities, rents need to be examined.
Office Supply
Attributes
Prime markets, larger parcels, higher yield.
Challenges
Tough to re-tenant, challenging sector, older buildings.
Home Repair
Attributes
Best in class operators, very high credit, rare relocations.
Challenges
Very large pricepoints, not many alternative tenants, small rental increases.
Pets
Attributes
Essential category, prominent retail locations, mix of merchandise and services.
Challenges
Some unsustainable rents, changing prototypes, healthy competition.
Theater
Attributes
Big operators, improved prototypes, decreasing competition.
Challenges
Somewhat questionable financials, single purpose buildings, some astronomical rents.
Fast Food/QSR
Attributes
Amazing, resilient businesses, fungible real estate, highest concentration of active tenants.
Challenges
Low cap rates, shrinking spread for franchise investments, some shaky credit with high rent.
QSR
Attributes
Modern, fresh & healthy concepts, prime locations, best in class operators.
Challenges
Hard to replace rents, aggressive cap rates, huge variety of lease structures.
Speak with Foretell
Still have questions? Want to learn more?
No matter your level of sophistication, or the size of your portfolio, there is always more to learn. Tell us a bit more about your situation and rest assured we will become a valuable partner in your net lease endeavours.