By: Robert Pliska, CRE, CPA
It has been reported in several recent news stories and data services that single tenant net lease opportunities are still being completed in today’s market – especially those in the lower dollar size range. New York City based-Real Capital Analytics recently reported that sales actually rose! Accordingly, we have been asked by many of our investors to “right size” these opportunities for them - note some of the positives and areas that should be addressed before they take the plunge into these investments in today’s market.
Single Tenant NNN Medical Office
To an investor, single tenant NNN opportunities provide some great positive aspects! These include (1) little, if any, management is required allowing many passive investors to purchase (2) good for section 1031 exchanges where an investor can currently avoid tax on sales of previous properties, (3) ability for the smaller investor to purchase smaller properties which can allow a purchase with cash only (eliminating bank financing issues which can be a problem in today’s market) or reducing risk by purchasing a multitude of properties, (4) can get very good credit on some opportunities insuring the investor will get paid on their lease over a long term on typically a monthly basis (5) easier to purchase in other markets than the investor’s own since much of the underwriting is more on the credit and viability of the tenant rather than the actual real estate (6) typically long term leases allowing the investor a rent check every month for a long period of time (7) many have lease bumps which protect against inflation and (8) can use tax advantages such as depreciation and sec 1031 to reduce the investor’s taxes One example of a single tenant NNN opportunity is http://sale.svn.com/concentra.
Many considerations should be reviewed, though, before plunging
Single Tenant NNN Property
into purchasing these properties. These include (1) getting good credit tenants behind the lease insuring that the investor will be paid over the length of the lease – there is only one tenant! (2) obtaining good corporate credit is typically preferred versus only a franchisee credit - assuming the corporate credit is acceptable (3) determining landlord expenses, if any, which can reduce the investor’s return (4) determining the success of the tenant in that specific location - it is better to have property that is operating rather than one that potentially may become vacant (5) determining that the price per foot on the real estate is not totally out of sink with the location and value of the real estate (6) making sure that if you originally get corporate credit it stays corporate credit over the length of the lease and cannot be transferred to the franchisee/operator (7) obtaining lease increases which can be a hedge against inflation (8) determining the ability to exit the investment if necessary (9) understanding the business, motives and objectives of the investor’s tenant. See Robert Pliska for the author’s single tenant NNN opportunities and properties on the market.
Balancing the above issues and determining the objectives and status of the investor is important. Finding the appropriate rate of return for the investment in the specific circumstances should be reviewed in detail. The higher the risks, the higher the return the investor should receive. Astute advisors substantially involved in the real estate industry for a long time may be helpful to assist the investor in making more informed, objective, safe and profitable decisions for your specific circumstances – to “right size” investments for you!
Tags: 1031, nnn, real estate, single tenant