Here’s an interesting article from GlobeSt discussing whether a bubble is forming in the net lease market. http://www.globest.com/sites/nataliedolce/2016/07/22/net-lease-challenges-or-a-bubble/. A few things to think about when buying net lease deals to increase the odds of a favorable outcome:
- Minimum lease term of 11 years
- Tenant/guarantor must have an investment grade credit rating by S&P, Moodys, etc.
- Focus on deals with annual rent escalations – target 2% annual
- Only buy deals at unlevered yields of 7% or better
If you’re actively in the net lease market, you know that accomplishing all these things is nearly impossible. If you’re able to buy long-term, investment grade deals north of a 7 cap you’ll be well positioned to make money in this market. Good luck.