Every year, Westwood Net Lease Advisors likes to share our choices for the best triple net (NNN) properties of the new year. 2023, here we come! Though most NNN lease investments are high-quality, low-risk, income-producing, reliable real estate, there tend to be a few stand-outs – some we highlight frequently because they just continue to get better, and others that may surprise you.
Which NNN Properties Should You Purchase in 2023?
Retail is predicted to be a solid opportunity in 2023. Emerging from pandemic isolation, human-to-human interaction and a tactile experience have become important again. Brick-and-mortar store sales have rebounded. Numerous triple net lease tenants, which are mainly essential retail brands, continue to add locations and revamp older stores. Medical tenants, fast food/QSRs, child care, and other service-based businesses are also growing, mostly unaffected by supply chain woes and a down economy.
So, which NNN lease property should you choose for your first or next NNN lease investment? Check out the following tenants for some ideas and let us know how we can help.
- Retail essentials: dollar stores, drug stores, auto parts stores, gas stations, convenience stores
- Fast-food & QSRs: KFC, Taco Bell, Dunkin’, Starbucks
- Auto parts & Collision: AutoZone, O’Reilly Auto Parts, Firestone
- Medical & Veterinary clinics: DaVita, Fresenius, Aspen Dental
Essential Retail NNNs
Last new year, we were talking about emerging from the pandemic. This year, we are happy to report not only have NNN lease brands emerged intact, but they are also more efficient, technologically advanced, and have homed in on what it means to be customer driven. Many have also managed to thwart most of the supply chain issues by being innovative.
Topping the list of great NNN choices for 2023 is Dollar General, followed by gas stations and convenience stores, such as 7-Eleven, auto parts stores, such as AutoZone, and pharmacies, such as Walgreens. Let’s first talk about Dollar General and its newest addition, pOpshelf.
Dollar General
Dollar General continues to be a favorite in the NNN space. Properties are reasonably priced with a low barrier to entry and the company continues to outperform the broader retail market. In Q3, 2022, the company’s net sales were up 11.5%. The brand added over 1000 new stores in 2022, pushing total nationwide Dollar General locations to 18,774. Historically, Dollar General and other discount retailers have thrived in all economies – good and bad – which is one reason NNN investors continue to purchase these assets.
When you factor in Dollar General’s investment-grade credit and long-term, corporate-guaranteed, absolute NNN leases, it’s no wonder buyers are still competing for Dollar General investments.
- Stores sell in the $1–2 million range.
- New stores operate with a 15-year absolute NNN lease.
- Leases are corporate guaranteed, which means you have the credit of a $30+ billion company guaranteeing the lease.
- Cap rates, considering market fluctuations, are typically between 5.00–6.25%.
- Leases include 10% annual rent increases in each 5-year option period.
- Dollar General NNN investments are extremely financeable with an approximate 35% down payment.
pOpshelf (by Dollar General)
pOpshelf is one to watch! In 2022, Dollar General opened about 100 pOpshelf concept stores in nine states. Stores carry $5 and under home goods, seasonal decor, party supplies, crafts, novelty foods, makeup, gift items, and toys. The brand caters to shoppers with an annual household income of $50,000 to $125,000 and stores tend to be in suburban locations.
DG plans to open 200 more pOpshelf locations in 2023, with a goal of 1,000 locations across the country in three years’ time. Eventually, Dollar General sees pOpshelf reaching 3,000 total locations. Each pOpshelf store is projected to make between $1.7– 2 million in annual sales with an average of 40% or more gross margin.
“It’s always good to see a new NNN lease opportunity. To have it be part of one of the strongest, most reliable brands in the market is even better,” said Chris Schellin, President of Westwood Net Lease Advisors.
Since pOpshlef is so new, there isn’t market information to share. But if you’re interested in owning one, just let us know and we’ll reach out to our vast network of developers, brokers, and sellers to get you started on the buying process.
Fast-food Restaurants & QSR NNNs
The expansion of the fast-food industry reflects QSRs’ major evolution over the last two years. Major fast-food and QSR brands, such as Starbucks, Taco Bell, and Dunkin’, have more profitable business models, scaled-down menus and store sizes, and use AI to operate with maximum efficiency. Changing by necessity turned out to be the best thing that could’ve happened to most of these NNN tenants, and it has helped to create abundant net lease investor opportunities.
A couple of single-tenant, net-lease fast-food and quick-service restaurant examples that fall into the growth category and offer stable cash flow with guaranteed, long-term leases include Starbucks and Dunkin’.
Starbucks
In a recent quarterly earnings call, Starbucks executives confirmed the company is accelerating growth in North America and overseas. Starbucks currently has 15,836 US locations in 3180 cities across the nation. According to CoStar, “Interim CEO Howard Schultz said the company would aim to open roughly eight stores per day worldwide over the next three years, equivalent to an annual growth rate of 8% and a pace of close to two U.S. stores per day.”
Starbucks has been our Tenant of the Quarter a couple of times over the years. The coffee purveyor stays one step ahead of the rest by anticipating customer demands in the changing market (the company had already started scaling some locations to drive-thru only before the pandemic), ramping up technology, and preparing for future growth in the face of adversity.
- Stores sell in the $2–3 million range.
- They typically sit on valuable 0.5–1-acre plots with high traffic counts.
- Cap rates, with market fluctuations, are typically between 4.50–5.75%.
- New stores operate with 10-year NN leases with extension options.
- Most leases offer terms that include a 5–10% rent increase every 5 years.
Dunkin’ Donuts
Dunkin’, formerly Dunkin’ Donuts, is second to Starbucks in number of US coffee-house locations with 9,538 stores in 46 states but ranks first in customer loyalty 13 years running. Inspire Brands, the owner of Dunkin’, has plans for westward expansion, as most of its stores are in the eastern half of the US. In just three years, Dunkin’ has opened 1000 Next Generation stores, a model that has more modern décor, a front-facing bakery case, and innovative technology.
“Dunkin’ is not slowing down in its plans to bring the store of the future to more guests. New Next Gen restaurants are popping up across the country, including in Mira Mesa, California, Trumbull, Connecticut, Las Vegas, Nevada, Bridgman, Michigan, and more,” according to an Inspire Brands’ press release.
- Dunkin’ QSRs sell in the $1.5–3.5 million range.
- Bakeries range from 500 sq. ft.–2600 sq. ft.
- Cap rates, with market fluctuations, are typically between 4.50–6.00%.
- New stores operate with 10–15 year, corporate-guaranteed, NNN leases or NNN ground leases.
- Leases usually offer 5–10% annual rent increases, and two, 5-year option periods.
Auto Parts & Collision NNN
Auto parts stores, tire centers, and collision repair centers have created a unique triple net asset class that continues to deliver. According to a recent Global Market Insights Inc. study, “Automotive collision repair market revenue is anticipated to record a valuation of $310 billion by 2027. A rise in the number of independent repair shops will bolster automotive collision repair market size over the assessment period.”
Firestone, O’Reilly Auto Parts, AutoZone, Goodyear, and Caliber Collision brands are just a few of the absolute NNN lease and NNN ground lease opportunities available in this sector. In 2022, another Westwood Tenant of the Quarter was Caliber Collision. This 25-year-old company has several subsidiaries under one brand and has aggressive plans to add to its 1500 nationwide locations in 2023.
- Caliber Collision Centers sell in the region of $3–5 million.
- They range in size from 10,000 sq. ft.–15,000 sq. ft. on .75–2.0 acres.
- Cap rates, with market fluctuations, are around 5.50–6.50%.
- New stores operate with 10–15-year, corporate-guaranteed NNN leases.
- Leases usually offer a 10% rent increase every 5 years and option periods.
NNN Medical & Veterinarian Clinics
Typically, medical, dental, and veterinary tenants lease for much longer than other commercial tenants due to location convenience for their customers and the major investment in customization and the build-out of their properties. People and pets need health services despite geopolitical, pandemic, and economic turbulence, which keeps NNN medical occupancy steady.
The most known nationwide NNN medical and dental clinics include DaVita, Fresenius Kidney Care, and Aspen Dental. Most US regions also offer NNN lease urgent care, dental, and veterinary clinics that are specific to the area. Medical clinics are typically long-term, no-maintenance, absolute NNN leases, while some are NNN ground lease opportunities.
Looking a little closer at DaVita, a Fortune 500 company, as of September 30, 2022, the company provided dialysis services to approximately 243,800 patients at 2,776 US outpatient dialysis centers. Though DaVita does not add hundreds of locations annually, they are on track to acquire others and open new stores throughout the year.
- DaVita Dialysis Centers can start as low as $2 million but are most often in the $3–4 million range.
- They vary in size from 6,000 sq. ft.–12,000 sq. ft. on 1–2.5 acres.
- Cap rates, with market fluctuations, typically range between 5.25–6.50%.
- New stores operate with 10–15-year, corporate-guaranteed NNN or NN leases.
- Leases usually offer a built-in 5–10% rent increase every 5 years, with option periods at the end of the lease term.
To Wrap it Up – Look for These High-Quality NNN Lease Properties in 2023
As an investor, you can’t go wrong with adding a high-quality NNN lease property to your portfolio. No matter where we find ourselves in the upcoming year regarding the economy, low-risk triple net lease investments can protect your capital from wild swings in value, provide reliable monthly income and tax benefits, and offer financial leverage. No other investment can help you build wealth with less worry.
There are many NNN asset classes, price points, and risk levels to choose from, and any triple net investment will make an excellent 1031 exchange if you’re selling another investment property.
- Essential Retail
- Fast food/QSR
- Drug stores
- Gas & convenience stores
- Child care & early learning
- Car washes
- Medical clinics
- Industrial sale-leasebacks
Contact Us for a No-obligation Conversation
Ready to move forward with your investment strategy? Westwood Net Lease Advisors is here to help you learn about and acquire a NNN property that fits your goals and lifestyle, at no cost to you. We have a nationwide network of sellers, brokers, and developers, and access to pre-market and off-market properties for the best selection. Be sure to contact us today for more information and a no-obligation conversation. 314-997-5227
