The recent surge in interest rates has posed significant challenges for owners of commercial real estate properties, especially those planning to refinance empty buildings soon. Multi-family programs have been written down by 20-30%, with riskier programs faring even worse. The global office vacancy rate was at 12.9% in March, similar to levels seen after the global financial crisis in 2009 and 2010, indicating the impact of remote work post-pandemic.
Amidst the uncertainty in the market, one safe investment option could be long-term net lease investments in essential retail companies with top-quality tenants and top-performing stores. Net lease agreements require tenants to cover property expenses such as taxes, insurance, and maintenance, reducing the financial burden on property owners. Essential retail businesses like grocery stores, pharmacies, and medical centers are considered “must-haves” that are more resilient to economic fluctuations compared to other retail stores.
Choosing top-quality tenants is crucial in net lease investments, as they need to be financially stable enough to cover additional property expenses without going bankrupt. Location also plays a key role, with top-performing stores typically situated in areas with growing populations, low crime rates, and demographics that support essential retail. Investors can either directly own standalone net-lease properties or opt for a portfolio approach through a Delaware Statutory Trust (DST) or private Real Estate Investment Trust (REIT) structure for diversification.
It is important to consider factors like liquidity, income, and growth potential when investing in net-lease properties. While such investments are not exposed to the stock market, they are still susceptible to economic issues like inflation, interest rates, and insurance costs. Long-term net lease agreements typically have modest rent bumps of 2-4%, limiting income growth compared to other investments. Despite these limitations, net lease investments offer stability and security in a volatile market.
Frederick Hubler, the founder and CEO of Creative Capital Wealth Management Group, advises on alternative strategies specializing in net-lease investments. Investors should carefully assess their risk tolerance and financial goals before entering into such investments. This content serves as educational and informational material, and not as tax, legal, or investment advice. Securities are offered through Arkadios Capital, with advisory services provided by Creative Capital Wealth Management Group. It is important to conduct thorough research and seek professional guidance before making any investment decisions.
