How Tight is the NNN Market?

Apr 15, 2021 | Blog, CRE - Commercial Real Estate, Triple Net - NNN or Net Net Net

At the close of first quarter 2021, commercial real estate (CRE) investor confidence stabilized, and most essential retailers’ growth surpassed expectations. Due to these factors and lingering economic uncertainty, investors who typically invest in the stock market and those who own high-maintenance properties are turning to single-tenant, triple-net (NNN) lease properties, tightening the availability of these investments more than ever before.

So, how do you locate and purchase a NNN lease property among intense competition? When properties on the open market are under contract by the time you see them? And how do you ensure your investment is strong and financially sound?

Businessman and customer are in consultation

To Buy a NNN Property When Supply is Low and Demand is High, Engage a Specialized NNN Advisor

With interest rates expected to remain low and the resiliency of triple-net investments, the advantages of owning NNN lease properties are as strong now as ever. In fact, experts predict the net-lease market may have one of its biggest years to date in 2021, which is making it even harder for buyers to find available NNNs.

The most reliable, and possibly the only way right now, to buy a triple-net lease property is to engage a specialized buyer’s advisor. Since the majority of properties are not making it on the open market or those that are, sell right away, you need an advisor who is well-known in the industry. One with a nationwide network of sellers, brokers, and developers; one who is in the know when it comes to properties coming up for sale.

For example, at Westwood Net Lease Advisors, we have a network of long-term, trusted contacts with whom we are in contact daily to find properties for our clients, those who also reach out to us for buyers.

“Although the demand is high and the supply is limited, with the proper advisory, we are confident you can find your ideal NNN investment — if you are willing to act fast.” – Jason Simon,  Vice President, Westwood Net Lease Advisors

Is it Still Smart to Buy NNNs with Compressed Cap Rates?

Even with slightly compressed cap rates, NNN properties still offer higher cap rates (5.00%-6.50%) than most commercial real estate when you factor in all the costs and tax opportunities, and they provide additional investor benefits that other CRE can’t match.

NNN benefits include but are not limited to:

  • A history of stable growth in all economies, even amid the pandemic.
  • Corporate-guaranteed, long-term leases that provide monthly income, no matter what.
  • Financial institutions eager to lend for these “essential” business properties.
  • The opportunity to raise an advertised cap rate from 5.00–6.50% to 8.00–10% IRR.
  • A low barrier to entry for all levels of investors.

“We have closed many NNN deals for clients with positive leverage driving actual cash-on-cash returns that are significantly higher than the cap rates when purchased.” – Phil Bundren, Westwood Associate Broker

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What Happens if I Wait to Invest in a NNN Property?

NNN lease investments are increasingly attractive to sophisticated investors, those performing 1031 exchanges to get out of high-maintenance properties, and first-time investors. Since NNNs provide reliable income, a safe yield, and little or no management, it may be difficult to locate an available single-tenant, net-lease property on the open market.

Additionally, the Biden Administration has plans to change capital gains tax rates, income tax, and death tax (cost-basis) policies. This is creating urgency for those who wish to get out of higher-risk investments to purchase NNNs before things change and for investors planning to use the 1031 exchange to make a move now.

Considering a commercial mortgage to purchase a NNN investment? Interest rates are creeping up, though they are still low enough to create an interest-to-yield rate spread that pays down the loan, which, on occasion, creates an increasing cash-on-cash (CoC) return with positive leverage. Real assets can retain their value in both up and down markets, so if rates increase due to economic growth, a NNN investment can actually benefit.

If you want to explore triple-net investing or diversify your CRE portfolio, now is a great time to do so –– waiting could lead to higher interest rates on commercial mortgages, fewer tax opportunities, and a further shortage of NNN properties to choose from.

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To Wrap it Up — In a Tight NNN Market, Engaging an Advisor May be the Only Way to Secure a Property

Triple-net lease investment benefits are inspiring more buyers to enter the market, creating high demand and a lower supply, which is furthered by 1031 exchange buyers who must purchase a property fast to fulfill their exchange and are often willing to pay a premium to lock-up.

If you would like to own a responsibility-free, dependable, NNN property with an investment-grade tenant in a great location and earn long-term income, engaging an experienced, specialized NNN advisor could be the only way to secure such a property in 2021.

When you work with Westwood Net Lease Advisors, we spend quality time with you to ensure we find just what you’re searching for, from the pre-property search all the way through closing, at no cost to you. Our goal is to get you into the strongest, most profitable investment and help you reach your goals. Contact us for a no-obligation conversation today. 314-997-5227


 

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