Though often reported to be in retreat position, real estate investors are—in reality—venturing out of their foxholes. They’re sensing up-ticks in the market, taking stock of their position and planning their next move. For the savvy investor, adding net lease real estate to their portfolio is an important strategy consideration.

Despite the risks, the benefits of investing in net lease commercial real estate generally outweigh the disadvantages. One of the most initially appealing advantages comes in the form of diversity.

Expanding the Playing Field
Investors are intimately familiar with the pages of our real estate cycle’s latest adventure. Values peaked. The debt market collapsed. Transactions dropped. Panic ensued.

As the story unfolded, for-sale listings flooded the industry. And while this pushed the market even further off center, it provided a major advantage to investors: a sizeable pool of available deals. In the net lease sector, it expanded the playing field with a diverse inventory of attractively priced investment opportunities for a range of users. Whether for a privately traded institutional investor, a high net-worth individual or a private equity partnership, a net lease property is available that can meet your deal size, geographic location or property type requirements.

Funding the Plan
Of course, you must pay to play, and financing in today’s economy is challenging. This is particularly true for large deals or transactions whose tenants have marginal credit. Although there are signs that the commercial mortgage-backed securities (CMBS) market is slowly re-emerging, this form of debt financing has a long way to go to recover from near disappearance. So, while investors are ready to make their next move, their hands remain tied. What to do?

Even in these challenging times, lenders have shown themselves to be more accommodating when offered with a deal that speaks to their favorite fundamentals: prime physical location, solid tenant credit and attractive lease terms. By nature, a good net lease property boasts all of these elements. Furthermore, with today’s wide availability of net lease listings, it’s easier than ever to locate a deal that speaks to both the investor and lender’s hot buttons.

More Tactical Advantages
Other elements that made the net lease buy historically popular have made it even more sought after in rough economic times. This includes the ability to act as…

Current Predictable Cash Flow: More than any other reason, investors tend to buy net lease for the predictable cash flow. Particularly when a property fits the classic net lease mold (a stand-alone building occupied by a single, national credit tenant), the ownership can look forward to regular checks with very little risk. Net lease deals are also typically longer term (10 or more years), which adds to cash flow security.

A Hedge on Inflation: During difficult economies, many investors have opted for the relatively safe haven of the bond market. However, while bonds offer a smaller return with less perceived risk on investment, they don’t provide the additional benefits of a net lease purchase, including the tax advantages of owning real property. Some net lease properties also come with rent escalation clauses that provide a nice hedge against inflation.

A Passive Investment: A rather unique aspect of the net lease investment is its “hands off” management demands. Net lease tenants are responsible for the management of the property and commonly pay all taxes and costs associated with the operation of the premises.

An Estate Planning Tactic: A net lease deal has notable “now-and-later” benefits for investors acquiring real estate for a family trust or legacy planning. On the front end, net lease properties deliver cash flow. In the long term, they provide an asset that appreciates in value. This makes for a desirable long-term investment legacy while providing a stable and passive haven for estate funds.

On this economic playing field, the net lease option continues to perform. It provides benefits above and beyond the traditional commercial buy, and remains a good diversification alternative to stock market returns and treasury bonds. Even today, a net lease investment can provide an ROI from six to above ten percent. In good times and bad, that’s a historically sound and attractive opportunity.

To speak to one of our brokers about finding the right property to meet your investment needs please contact us at 918.494.2690.