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 Amazon.com 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:
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.
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.