Net Lease Property Owners and Tenants Are Feeling the “Amazon Effect”

Once the darling of sophisticated real estate investors seeking long-term income streams, I believe the net lease investment sector is now experiencing big challenges and property owners may have reason for concern.

What’s behind this disruption? In one word, Amazon.

The Effect

With consumers increasingly making purchases online, single and even multi-tenant net lease properties are feeling the impact as tenants watch their volumes and margins erode.

There is a domino effect occurring, too, because tenants are now going to extraordinary measures in order to reduce costs and it’s often the owners who end up bearing the financial pain.

Recently, a net-lease property owner spoke of a recent request received from an anchor tenant with a national footprint, expressing that they’d need a big rate reduction if the owner wanted to keep them in the property.

Some tenants are simply closing their doors and breaking their leases, leaving owners stuck unexpectedly with vacant space, lost income, and the additional costs of insurance, taxes and utilities previously covered by the tenant(s).

DST’s Provide An Interesting Option

Fortunately, if suitable, there is an alternative option available for real estate investors seeking the same type of income potential that net lease investments have historically been known for. That strategy is the Delaware Statutory Trust (DST) and it is a very popular investment structure that also meets Internal Revenue Code Section 1031 Exchange requirements.

A few potential benefits the DST offers investors include:

Greater Diversification

The unique structure of a DST offers investors the ability to own a fractional interest in a wide variety of property types, sizes, and geographic locations. This provides broader diversification and can help reduce the risk associated with a single net lease property in a single location.

Institutional Quality Property

DST sponsors that are generally very sophisticated and experienced investors are often skilled in identifying high-quality institutional property they believe will provide long-term income and have potential for appreciation.

Professional Management

DST’s are structured so that investors have no responsibility for managing their investment property. So, maintenance, tenant turnover and even property promotion are all functions handled by professional management teams experienced in these disciplines.

There are other benefits a DST may provide and as with any investment, there are certain risks to consider as well. The Fortitude team can help provide more insight for interested real estate investors.

Postmortem for the Net Lease?

With the popularity today of the DST, is the triple net lease property a bad investment? I wouldn’t say categorically it is, but I do believe as consumer shopping behavior continues to go digital, it is a time for caution and increased due diligence for investors considering this type of investment, especially for retail properties.

With Fortitude’s long history in helping investors with their 1031 Exchanges and DST investments, we see a lot of deal flow and have current access to many well-known sponsors with offerings in a variety of property types. We spend a lot of time and energy evaluating these properties so that you won’t have to when you’re ready to consider an investment.

Don’t hesitate to contact us if you have any questions about a 1031 exchange using the Delaware Statutory Trust (DST) structure.

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This is for informational purposes only and is not an offer to buy/sell an investment. There are risks associated with investing in Delaware Statutory Trust (DST) and real estate investment properties including, but not limited to, loss of entire principal, declining market value, tenant vacancies and illiquidity. Diversification does not guarantee profits or guarantee protection against losses. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated. Because investors situations and objectives vary this information is not intended to indicate suitability for any particular investor. This information is not meant to be interpreted as tax or legal advice. Please speak with your legal and tax advisors for guidance regarding your particular situation.

Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services offered through Concorde Asset Management, LLC (CAM), an SEC registered investment adviser. Insurance products offered through Concorde Insurance Agency, Inc. (CIA) Fortitude Investment Group is independent of CIS, CAM, and CIA.

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