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Rethinking "internet resistant" in a post-COVID-19 environment
Over the last decade, those investing in commercial real estate have become enamored with internet resistant tenants. Businesses that provide their customers an experience or service that can't be purchased online have become increasingly appealing to net lease investors as e-commerce and online shopping continues to gain in popularity.
With the recent health crisis, some of the tenants once deemed highly attractive due to their internet resistant characteristics are temporarily falling out of favor because of their non-essential categorization. Businesses including clothing retailers, movie theaters, fitness centers, some restaurant concepts, and even certain medical providers have been forced to close their doors in recent weeks. And while many of these businesses will survive and reopen, landlords are currently under pressure to provide rent relief and other concessions that increase their level of risk in an otherwise low-risk net lease investment.
So how do net lease investors prepare for the future and invest with confidence in today's market? There's no right or wrong combination of essential businesses vs. internet resistant tenants - it's personal to the investor's criteria and risk profile. But those looking to find tenants that fall into both categories may want to consider medical retail investments like dialysis or urgent care facilities, freestanding grocery stores, drugstores, and dollar stores, among others. It's also important for investors to understand that essential businesses may only be in the spotlight temporarily, so if a tenant or concept wasn't part of their investment strategy before the health crisis, it may not be an appropriate addition now. Investors should always consider both long-term trends and short-term influences when making decisions. But for now, being cautious and aware doesn't mean that investors should shy away from non-essential businesses, especially when the investment offers a strong credit profile and good real estate fundamentals.