As we move into the third quarter of 2025, the triple net lease (NNN) market finds itself in a holding pattern that might feel like the status quo. We sat down with Westwood Principal Jason Simon to break down the complex market that smart investors interested in investing in NNN lease need to understand before jumping in feet-first.
The Federal Reserve’s Steady Hand
Just last week, the Federal Reserve maintained its position for the fourth consecutive time, holding interest rates steady with no cuts in sight. This decision keeps financing costs firmly planted in the mid-6% range. This means that leveraged buyers will need expert buyers’ advisors like the Westwood team more than ever. When the margins are thin, you literally can’t afford to make a misstep.
This financing environment has created a clear divide in the investor pool. Our clients who can afford to pay cash are doing so, avoiding leverage whenever possible. Meanwhile, our investors who require financing are pursuing higher-return opportunities to cover their debt service costs. As cap rates and interest rates shift over the next 2-3 years, even leveraged buyers stand to make great returns in the long run.
Cash Still Reigns Supreme
The current market dynamics strongly favor cash buyers. With interest rates hovering in the 6% rang, most investors who have the option are choosing to deploy cash rather than take on leverage. The mathematics are compelling: Even though interest rates are high, cap rates remain attractive compared to pre-2022 levels, offering cash buyers access to quality assets at what amounts to a significant discount.
This creates two distinct investment strategies:
- Cash buyers can target stable, lower-yielding assets with established tenants, prioritizing safety and predictable income streams.
- Leveraged buyers, by necessity, can pursue properties with higher cap rates to generate sufficient cash flow after debt service.
The Bonus Depreciation Wild Card
Perhaps the most significant potential game-changer on the horizon is the proposed return of 100% bonus depreciation. Currently sitting at just 40% (that will eventually zero out by 2027, under current regulations), the policy could jump back to 100% – a development that would provide a substantial boost to the entire NNN industry. If enacted, this tax advantage could be the catalyst needed to bring sidelined investors flooding back into the market.
(Hint: Smart buyers get ahead of the upcoming busy season where lots of buyers will be vying for the same properties. Are you one of them?)
The ongoing volatility in broader financial markets has created an unexpected advantage for triple net lease investments. When stock markets swing wildly, the predictable income stream and long-term stability of NNN properties becomes increasingly attractive to investors seeking refuge from uncertainty.
The key for buyers is understanding that not all retail concepts are created equal. Everyone wants long-term, steady, stable returns, but achieving that requires careful tenant selection and proper due diligence. That’s where our buyers’ advisors come into play.
The Conservative vs. Growth Divide
Current market conditions have revealed a clear preference hierarchy among investors. For many buyers, stable returns trump the desire to maximize every dollar of yield. The “sleep at night” factor behind NNN lease properties matters, with investors willing to accept slightly lower returns in exchange for greater certainty and established, credible tenants.
This conservative approach is particularly pronounced among cash buyers who have the luxury of choice. Leveraged investors, constrained by the need to cover debt service, must pursue higher returns out of necessity rather than preference.
What’s on the Horizon for Q3 and Q4 2025
While current conditions present challenges, they also create opportunities for those willing to act. Yes, interest rates remain elevated, but cap rates are better than they’ve been in years. For investors who can secure quality assets now – whether through cash purchases or by accepting current financing costs – there’s significant upside potential when market conditions normalize.
The logic is straightforward: buy at today’s attractive cap rates, and when interest rates eventually decline, benefit from both the immediate income and potential appreciation. It’s essentially buying at a discount to where properties traded in previous market cycles.
Several key developments could reshape the NNN market in the coming quarters. The potential restoration of 100% bonus depreciation represents the most significant policy catalyst, with the power to drive substantial new investment activity if enacted. This tax advantage, combined with eventual Federal Reserve rate cuts, could create a perfect storm of buyer demand.
For the remainder of 2025, successful investors should prepare for potential policy changes while taking advantage of current cap rate levels. The market may feel static now, but the underlying fundamentals suggest significant activity ahead. Those positioned to act when conditions shift – whether that’s Q3, Q4, or early 2026 – stand to benefit substantially from today’s preparation and patience.
The question isn’t whether market conditions will improve, but whether investors will be ready to capitalize when they do. With attractive cap rates, potential policy tailwinds, and continued demand for stable income streams, the stage is set for increased activity as we move through the second half of 2025.
