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to topic listingRetail Investment Types
How safe are net lease property investments?
Real estate investment is a relatively risky endeavor. It can be considered more or less risky depending on may variables. The Net- lease investment is considered by many to be one of the least risky of all real estate investments, since these properties (usually) do not involve tenant turn-over (and the costs associated with re-leasing) are usually long-term, and if the tenant is considered "investment grade", the risk is substantially mitigated.
Multi-Tenant Retail: Since retail sales are so dependent on the property location and overall economic indicators, it is considered to be one of the most risky real estate investments. A new by-pass can change a traffic pattern and virtually "kill" a retail properties' vitality overnight. On-going demographic shifts can change shopping patterns and a retailers' market can dry-up over time. Inflation and product shortages can cause further problems. A multi-tenant retail owner must consider the likelihood of losing its "mom & pop" local retailers and should brace for the potential loss of an anchor or "credit tenant" over any reasonable holding period. Retail sales are finicky and seem to be influenced by tenants, fashions, climate & weather, as well as problems brought on by retailer ineptitude and apathy. Corporate mergers & acquisitions and bankruptcy can also have significant negative impact on a properties' health with little or no recourse available to the investor. Advancements in technology and continued exponential growth of the Internet and Internet based shopping continues to threaten retail sales. If this trend to erodes additional sales, one can expect more store closings, which will have severe implications on retail investments.
Single Tenant Net-Leased: Considered to be the lowest risk property type, since it usually involves a long-term lease, with one tenant. Often the lease is with a "creditworthy" national or regional tenant. Net-Lease properties are usually very well located, quality real estate with good demographics, and probable long-term residual value. Also, these properties are one of the most passive forms of ownership, involves little or no problem tenants and vacancies or related lease-up costs. Although returns vary based on the tenant, lease structure and location, an investor can expect "going-in" cap rates of 6.50% to 10.00%.
