Single Tenant Investments
Offering higher yields with comparable risk to investments such as bonds or mutual funds, Single Tenant Investments, also referred to as triple net leased investments “NNN”, are increasingly sought after in the commercial real estate market. Stable cash flows, long leases of typically 10 to 20 years, and tenants responsible for maintenance and upkeep of the property are all key characteristics for investors of these kinds of investments.
These investments are typically better situated than other commercial real estate investment classes at retaining their value through economic setbacks for two key reasons. First, long-term leases control the income streams mitigating short-term variations in the market. Second, exceeding demand for these long-term investments have stabilized prices through a rising interest rate market.
The Benefits of Single Tenant Investments
The market for investors for single tenant investments is one of the broadest in all of commercial real estate due to the sector’s low management requirements. This allows the investor pool to range from institutions seeking stable income streams with higher yields than bonds to mature investors seeking to move towards a capital retention phase for their portfolios.
The investor benefits of these investments do require essential details to be covered on the front end in order to ensure success. Careful attention should be given to:
- Creditworthiness of the tenant with long-term leases being held by stable, nationally recognized, and publicly traded tenants
- The strength and length of the lease with the tenant paying most, if not all, expenses. The only expenses the investor should even consider being responsible for is the roof and exterior walls at a maximum.
- The frequency and dollar amount of rental increases over the life of the lease to guard the investor against inflation.
The Risks of Single Tenant Investments
Even with proper lease structure, single tenant investments do have their share of risks that an investor must consider. First, investors should consider their need for liquidity. These investments generally do not provide short-term profit opportunity, and the cost of liquidation can include brokerage commissions, title insurance, and other closing costs.
Second, an investor has exposure to losing a tenant through possible bankruptcy, merger or acquisition. Due to the investment properties being viewed as long-term hold opportunities, investors should plan for an alternative property use in case a tenant vacates early. Many types of these investments are uniquely purposed properties; sometimes constructed in non-typical commercial real estate locations. Residual value of the property after lease expiration or tenant vacating should be a consideration on the front end.
South Mississippi NNN Markets
Some of the most attractive single-tenant acquisition opportunities can be found in secondary and tertiary markets. Institutional investors are less focused on these markets , which creates an exciting opportunity for individual investors. Tertiary markets, such as those throughout South Mississippi, specifically tend to be more geographically isolated and offer fewer barriers to entry against substantial levels of new construction. Outside of primary markets, acquisition opportunities can take larger investments time to identify, but the resulting investment often justifies the extra effort. Working with a commercial real estate broker within these markets increases local insight for investors.
SVN | Southgate Realty, LLC is proud to be part of the international reach afforded by SVN Commercial Real Estate Advisors. The SVN National Council on Single Tenant Investments is well regarded as an industry leader in NNN investments. Sharing fees and exposing our listings to the entire brokerage community, including international investors, separates SVN from the competition providing our clients unmatched advantages with their dispositions. SVN brokers work diligently with investor’s financial and legal advisers to make certain the investment is under consideration by our clients meet all financial, management, and personal objectives.