COVID-19 has changed business as we know it – brands and companies that seemed immune to economic, political, or other types of turmoil were, surprisingly, some of the hardest hit. However, after scrambling to meet the new CDC guidelines, consumer demands, and omnichannel distribution, essential-needs retailers came through the pandemic with increased profits, and fast-food brands stepped up with leading-edge technology and other positive transformations.
Now, at end of 2020 and amid the ongoing pandemic, an increasing number of non-essential companies are permanently closing while needs-based businesses expand, which has left many triple-net lease investors wondering, what are the best NNN investment opportunities for 2021?
NNN Investment Properties to Rely On in 2021
In what is still considered a “COVID marketplace” and will most likely remain so well into 2021, CRE investors can rely on NNN property investments as a lower-risk option that provides a healthy, stable ROI. In any economy, triple-net properties with investment-grade corporate tenants offer a reliable monthly income not seen in any other type of investments, and they present a myriad of capital-preserving benefits.
As we head into the new year, dependable NNN lease tenants such as Dollar General, Walgreens, CVS, 7-Eleven, O’Reilly Auto Parts, AutoZone, Aspen Dental, and DaVita are still growing and providing reliable income for investors. Additionally, major fast-food brands that have implemented more efficient, contactless operating systems have returned to business stronger than before and are likely to weather any future economy or health-related storms.
Therefore, to help NNN investors determine where to invest their hard-earned money in 2021, we thought we would outline a few of our choices for the best NNN investment opportunities.
- Fast-food/QSR brands that are growing with maximum efficiency.
- Dollar General stores and its new brand, pOpshelf.
- Medical and dental clinics.
Fast-food & QSR Investment Properties
Much to everyone’s surprise, an industry that we thought was immune to economic and other types of turmoil was one of the hardest hit during the pandemic – the fast-food and quick-service restaurant (QSR) industry. COVID-19 forced a change in the way surviving brands conduct business, making them stronger and more likely to thrive no matter what comes their way.
Major brands are piloting smaller footprints and more digitally-centric restaurants to meet growing demand for mobile ordering and convenient pickup options. More brands are also embracing geolocation technology as they pivot to more mobile-first dining options.– QSR Magazine
Major fast-food & QSR brands have embraced a much more efficient and profitable business model that will have a greater chance of riding out unforeseen future calamities. Brands such as McDonald’s, Taco Bell, KFC, and Wendy’s have implemented the following changes:
- Designing new locations with less indoor square footage
- Existing and new locations are adding more express drive-thru lanes
- More efficient digital services/mobile app ordering and curbside pickup
- Fewer menu choices and affordable, revolving options target consumers’ most immediate needs
- Breakfast-as-we-know-it has all but gone away, replaced with more foundational menus
Digital orders at all Yum! brands (Taco Bell, Pizza Hut, KFC) hit an all-time high, jumping $1 billion to $3.5 billion from the same quarter (Q2) a year ago. Taco Bell served an additional 5 million cars through its drive-thrus compared to the same time a year ago. – Yum!
If you are considering a NNN investment in 2021, the above changes have made investment-grade QSR brands and fast-food franchise owners with over fifty locations, lucrative prospects. Tenants operate under long-term, corporate-guaranteed leases, and properties range in cap rates from 4.00–6.00% with a median asking price of $1.995 million.
Dollar General & pOpshelf Property Investments
Dollar General has been Westwood’s favorite NNN investment for many years. The company’s growth is astonishing – on December 3, Dollar General opened its 17,000th store. In 2021, the company plans to grow into major metropolitan statistical areas (MSAs) with a new brand, and add another 1,050 of its traditional, 7,500 square foot store locations with more groceries and fresh produce offerings.
One of the things investors are most excited about is the continuing rollout of pOpshelf, Dollar General’s newest retail concept. Aimed at suburban women with household income over $50,000 per year, 95% of the store’s items – home decor, beauty items, cleaning supplies, party goods and more – are $5 or less. Each store is roughly 9,000 square feet and includes many of Dollar General’s private labels. The company began the rollout of pOpshelf in Nashville, Tennessee, in the fall of 2020, and plans to open 30 more in the coming year.
“We are excited to once again accelerate our real estate growth plans in fiscal year 2021,” said Jeff Owen, Dollar General’s Chief Operating Officer. “Our portfolio of high-return real estate projects continues to be a top priority for capital allocation. With a robust pipeline in place and plans to execute an average of nearly eight real estate projects per day in fiscal year 2021, we are enthusiastic about the opportunity to further expand our footprint and serve even more customers across the country.”
According to the 2020 Q#3 report, for the 52-week fiscal year ending January 28, 2022 (fiscal year 2021), the company plans to execute 2,900 real estate projects, including the 1,050 new stores, 1,750 remodels, and 100 store relocations.
Most Dollar General NNN investment properties sell in the range of $1–2 million, with 6.00% to 7.00% cap rates. A full-term lease is typically a 15-year, absolute triple-net, corporate-guaranteed lease with 10% rent escalations every 5-years during option periods.
Notice, if you want to invest in a Dollar General property, it is prudent to engage a Westwood Net Lease Advisor for assistance as most don’t stay on the market long, and many never make it on the open market. We work with our extensive, nationwide network of sellers, developers, and brokers to find these properties for our clients.
Net-lease Medical Sector
Third-quarter 2020 saw an increase in CRE transactions and demand from both single-tenant private and institutional net-lease investors for investment-grade medical and “medtail” properties. These properties include companies such as DaVita and Fresenius, urgent care groups, and other healthcare services, such as Aspen Dental. The services these tenants offer remain in demand in any economy.
The long-term outlook for healthcare properties is strong due to an increased need for convenient healthcare. According to the U.S. Bureau of Labor Statistics, healthcare is the fastest-growing category in annual U.S. GDP at +5.5% annually. Medical office buildings (MOBs) represent approximately 39% of U.S. real estate value, and that figure is steadily increasing. Health-related and medtail businesses are critical staples and make for reliable triple net lease investments.
Let’s look at Aspen Dental and DaVita as examples.
Aspen Dental supports 850 practices in 42 states that care for 26,000 patients per day. According to the company, “more than 75 Aspen Dental-branded practices are expected to open every year and provide high quality, affordable dental care to certain targeted demographic groups most in need of access to care.” Aspen Dental has also rolled out a pilot program inside Walgreens retail pharmacies for added convenience.
Aspen Dental’s business model (dentists own and operate the practices), commercial real estate investor benefits, and the company’s essentially recession-proof services make Aspen Dental a worthy property investment opportunity.
These net-lease properties sell at a reasonable price point, between $1.5–2 million, and sit on visible 1/2 – 3/4 acre lots with easy access. Properties advertise 6.00 to 6.70% cap rates and operate under 10+ year NN corporate-backed leases with few, if any, landlord responsibilities. Each corporate-guaranteed lease offers strong rent escalations. Aspen Dental properties are a solid investment choice for first-time investors or experienced CRE investors who want to diversify asset classes within their real estate portfolio.
DaVita Kidney Care
As of September 30, 2020, DaVita Inc. served 238,200 patients at 2,809 (up from 2,795 June 30) outpatient dialysis centers in the United States. During Q3 2020, DaVita opened 17 new dialysis centers, acquired five, and closed eight in the United States. Amid COVID-19 challenges, the company delivered strong financial and operating results.
“I am proud of the hard work and dedication of our 65,000 teammates in delivering essential, life-preserving care to our patients,” said Javier Rodriguez, CEO of DaVita Inc. “Due to their efforts, we have been able to sustain continuity of care despite the disruption caused by the pandemic, while maintaining our strategic focus on leading the transformation of kidney care.”
DaVita Kidney Care property investments start at $1.5 million with cap rates in the region of 5.50% to 7.00%. The company offers 10- to 15-year corporate-backed leases, little to no landlord responsibility, and incremental rent increases of 5–10% every 5 years.
CRE to Avoid in 2021
Due to the ongoing uncertainty of the pandemic and consumer shifts to work-from-home, online shopping, socially distant exercise, and in-home dining, it is best to avoid investing in shopping centers, office buildings, dine-in restaurants, fitness centers/gyms, and clothiers.
If you own a multi-tenant NN property or non-essential commercial real estate investment, now is a great time to trade-up in a 1031 exchange to a more stable, single-tenant, fee-simple NNN lease investment with a creditworthy tenant.
Westwood Net Lease Advisors work with developers, sellers, and brokers to locate off-market/pre-construction properties to provide the most suitable NNN investment choices for your goals. Our team guides you from the property search to closing – all at no charge to you.
To Wrap it Up – NNN Investment Opportunities for 2021
COVID-19 has changed the retail and restaurant industry, possibly permanently, and those changes have forced greater efficiency, upgraded technology, and growth through adversity. The selection of major brands that continue to adapt and give consumers a safer, more streamlined shopping or medical services experience will continue to be dependable NNN investment opportunities for 2021.
Since NNN lease investments offer a healthy return with lower risk in this uncertain economy, supply is tightening. If you are interested in utilizing a 1031 exchange or want to purchase a NNN lease investment that fits your objectives, there’s no time to waste. Reach out to a Westwood Net Lease Advisor today for a no-obligation conversation. 314-997-5227