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Single-tenant investments continue to deliver stability
Research - OCTOBER 23, 2019

Single-tenant investments continue to deliver stability

by Andrea Zander

The stabil­ity of single-tenant net-lease retail continues to attract investors, with an increasing number of buyers coming from other property types, reported Marcus & Millichap.

The 1031-exchange remains a common gateway to the sector as roughly 44 percent of STNL buyers in the past four quarters uti­lized the tax-deferred exchange. Apartment and retail investors have popularized this acquisition strategy as they seek assets with less downside risk amid increased economic uncertainty and concerns of cycle maturity. Falling interest rates and decreasing Treasurys have provided additional boosts to the sector’s appeal, breathing more life into potential deals that had lost vigor just a few months ago. Inves­tors can now capture higher leveraged returns as the yield spread be­tween the average STNL cap rate and 10-year Treasury widened to 400 basis points at the end of the second quarter.

Recent financial market turbulence reiterates the stability of STNL retail. While this has the potential to attract additional capital to the sector, it also provides current commercial real estate investors an opportunity to re-evaluate existing portfolios. With the economic outlook moderating, investors may consider more defensive asset al­locations that favor STNL retail assets with a strong credit backing and favorable lease terms. These bondlike assets could provide own­ers increased security in weaker economic conditions, maintaining steady portfolio performance. Though a resolution to the trade war in the short term may alter the financial metrics, analyzing current portfolios will still prove beneficial as the current cycle extends.

 

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