The Many Benefits of Single Tenant Investments

Single tenant investments, or often referred to as single tenant net lease (STNL), are becoming a widely popular niche within the commercial real estate marketplace.  It has gained a lot of attention from investors as it provides a stable source of income, has fewer owner costs, and is the lowest management-intensive asset type within commercial real estate.  So let’s look a little closer at this type of asset to fully understand why it’s so popular.

A single tenant net lease (STNL) asset is typically a free-standing building leased to one tenant.  Generally, the building is either retail, office or industrial. Ideally, the tenant has committed to a long-term lease with ten (10) or more years, with regular rent increases along the way.  The single tenant, is responsible to pay rent, and usually held liable to cover all of the operating expenses like taxes, insurance, utilities and repairs. This is unlike other real estate assets in which the landlord or owner is responsible to cover all of these expenses.

Another distinguishing factor with the single tenant asset class, is that here, the single tenant net lease asset’s value is determined by multiple factors and not just by the real estate itself.  With single tenant net lease assets, value is determined by the tenant’s credit (risk factor), the term of the lease, and the typical location factors such as location and physical construction. These single tenant net lease assets tend have lower risk involved, and with the “hand-off” management style, are an incredible passive investment for people.

So aside from the obvious low management-intensive benefits, just why is this asset class so beneficial? As mentioned before, as these assets tend to have long term leases with regular rent increases, they tend to hold their value in a volatile economy — and with the increases in rent, it’s a hedge against inflation.  Further, single tenant assets provide a steady cash flow. Yes, there are risks and when looking to invest in a single tenant asset, definitely choose one with a longer term – like a recently executed 20 year lease with an investment grade tenant (Moody’s and S&P provide great analysis on tenants, and has a great summary of tenants when looking to review an asset.

Along those lines, there is an abundance of single tenant net lease assets in the $1M to $5M range, allowing new investors to get their feet wet before moving on to the larger single tenant assets on the market.  And a great way to diversify your risk, is to have multiple investments, with different tenants. As you tend to your investments and grow your portfolio, you will find yet another benefit of single tenant net lease.  Major tax benefits in the form of a 1033 or 1031 exchange allow you to postpone paying capital gains taxes as long as you invest in like properties, with at least the same amount of debt. Which means, you can use your earned capital gains tax free to expand into bigger properties, only adding to your stream of cash.

If you are considering investing in real estate but are not thoroughly familiar with this type of investment, one of our specialists at Calkain can provide you with the information you need to know. We can also inform you of suitable opportunities, including any single tenant real estate investment that may meet your portfolio needs. Call us for an appointment.

What Are the Benefits of a Net Lease Investment?

At Calkain, we are often asked for our recommendations regarding optimum investments, including single tenant opportunities. The answer varies according to an investor’s portfolio needs and other variables that must be considered. Many have found that net lease investments meet most of their desired criteria, which is why this type of investor is increasingly popular. We invite you to call us at Calkain to schedule a consultation with one of our specialists who can review your investment goals and provide information about opportunities specific to your needs. What follows is a general overview of the many benefits of a net lease investment.

What is a triple net (NNN) lease?

One of the most popular types of net lease options is the NNN lease. In this type of net lease, the party that leases and occupies the property must pay the real estate taxes, insurance premiums, and maintenance costs. These fees are in addition to the lease payments.

What is a double net (NN) lease?

A NN net lease is very much like an NNN lease. However, the property owner is usually responsible for paying for the maintenance and repairs for the building. Our clients often prefer NN net lease opportunities over NNN net lease investments for newer buildings because the overhead is lower, and they can charge tenants more for leasing. A Calkain specialist can review your financials and provide you with the guidance you need to make informed investment choices.

Ownership Options

In most cases, a net lease property is leased to a single tenant. However, it’s not unusual for a group of investors to acquire fractional ownership of a net lease property. In this way, the investors share risk as well as profit. This approach also enhances their financial ability to diversify their portfolio in multiple investments. A common example is a mall in which a group of investors purchase the entire property and subsequently lease the individual shops to individual tenants. If one shop is vacated, the temporary loss of revenue is divided among the investors and is less impactful than a single investor whose only property loses its net lease tenant. Calkain offers net lease investment options with risks and benefits that are best suited for your portfolio.

The Benefits of a Single Tenant Net Lease Investment

After a careful review of your financial circumstances, a Calkain specialist can recommend what type of single tenant net lease investment best reflects your needs and in what ways. Here are some of the most popular benefits:

  • A net lease investment offers predictability. When a single tenant signs a lease, they and the property owner enter into a mutually understood relationship. The lease’s terms are clarified and agreed upon. For the life of the lease the investor (property owner) can expect to receive regular payments of a pre-specified dollar amount. Increases in rent are understood in advance and scheduled accordingly. Unless the tenant defaults on their lease, there should be no surprises for the property owner when it comes to receiving payments from the tenant.
  • A net lease investment offers stability. By its very nature, a long term net lease means less tenant turnover which in turn means a higher rate of vacancy. Such term agreements also require significantly less effort in finding new tenants. Not only do these factors lead to revenue stability but they also make a net lease property attractive for resale purposes. Long term net lease investments provide investor safe havens in a downturn economy when the tenant is a member of a national chain and backed by a corporation.
  • Cash flow. A single tenant real estate investment offers consistent revenue for the duration of the lease.
  • Inflation hedge. A single tenant real estate investment offers a hedge against inflation because the lease can be constructed in such a way to allow for rent increases in direct proportion to inflation. It can also be increased after the expiration of a lease prior to renewal. In an inflationary environment, the investor has the ability to maintain their real returns in this way.

What uses are there for a single tenant real estate investment?

They are varied because several markets have use for this type of property and include:

  • Retail, including department stores, restaurants, grocery stores, service providers, and others.
  • Industrial, including warehouses.
  • Commercial offices for sole proprietorships, national or international companies, small businesses, and more.

What is involved in a build-to-suit single tenant real estate investment?

In most cases, a build-to-suit is one in which a warehouse or industrial facility, or even an office, is custom built for a single tenant based on their workflow needs. This approach can be attractive to developers because they can choose to maintain ownership of the building, or they can sell it, whichever is most beneficial to them.

What are corporate sale-leasebacks?

A significant number of single tenant properties are those which are commercial properties sold to third parties who lease back to the seller, usually on a long term basis. This may seem counterintuitive, but it allows the original owner to generate short term revenue as well as have another party provide or pay for the property’s maintenance and management.

Learn More About Single Tenant Net Lease Investments

After a thorough review of your portfolio needs by one of our investment specialists from Calkain, you will have a clearer understanding of whether or not a single tenant real estate investment is the right choice for you.To learn more about net lease investments and if they’re right for you, contact us at Calkain today. One of our specialists will be happy to meet with you and provide you with the information you need to make the smart single tenant net lease investment choices that can help you reach your financial goals.

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Traci BidingerThe Many Benefits of Single Tenant Investments