Net Lease Market Outlook

After a solid 2019 performance, the net lease industry appears to be headed for continued success in 2020. A combination of low interest rates, changes in the United States tax code and the desire for greater return on investments have caused high demand within the net lease market segment.

Lower Interest Rates, Greater Yields

At the start of 2020, many investors feared interest rates might increase, which would lead to a correction. Instead, interest rates have remained fairly low. Since the cost of capital is lower, buyers are free to invest money into larger deals. With this in mind, many commercial real estate owners are taking this opportunity to sell their smaller assets at superior price points. This, in turn, has created a steady supply of properties for potential buyers.

Slight Slowdown in Retail Development

A decrease in retailer development in certain markets has led to an inevitable slowdown in new retail development since 2016. However, the properties that are being built are extremely desirable for buyers. As always, newly built assets are sold at a premium due in part to their long lease terms and low maintenance costs. In addition to these new construction projects, resale properties have become popular in many markets.

Types of Properties in High Demand

The single tenant net lease (STNL) market has long been viewed as a stable investment vehicle. Guaranteed rents and known financials are just two of the many factors that make net lease assets ideal investments. The most in-demand properties in the STNL sector have a few things in common: these assets are brand-new construction in enviable locales with credit-backed tenants. Additionally, potential buyers prefer properties with Internet-proof tenants.

These preferences have led to the rise in popularity of quick-service restaurants (QSRs) among investors. Most trophy assets in the QSR market feature strong credit tenants whose profits are not hampered by Amazon and other Internet retailers. These lower-priced properties tend to have scheduled rental increases every five years and longer lease terms. Ground + Space currently has a McDonald’s for sale in California, Maryland that is a prime example of an enviable QSR asset. Other popular tenants in the QSR space include Starbucks and Dunkin’ Donuts.

Multi-tenant properties are also in high demand, especially those created via break-up strategies. To put it simply, a break-up strategy involves dividing a property into multiple parcels which can then be independently sold to different investors. This strategy is successful in part because it caters to the needs of a larger field of buyers. More buyers are in need of properties within the $2 million to $5 million range than larger properties with price tags of more than $30 million. The team at Ground + Space have worked with several property owners to facilitate break-up strategy sales of trophy assets in major markets.

About Ground + Space

Interested in maximizing your investment opportunities? Ground + Space is a leading commercial real estate brokerage firm that specializes in single-tenant and retail NNN investments. Contact us today to receive a full evaluation of your commercial real estate assets. We can help you determine whether now is a good time for you to sell your property.


Just Sold: CVS in Lexington Park, MD

Ground + Space announced today the sale of a CVS in Lexington Park, Maryland. This property is a 10,125-square-foot retail asset prominently situated within a fast-growing retail corridor. Ground + Space Principal Michael Zimmerman exclusively marketed the property and represented the seller, an Alabama-based corporation. The property sold for an admirable cap rate of 5.48 percent.

The NN lease features a corporate guarantee and an extremely rare 20 percent rental increase within the first option period. The tenant recently extended the base term of the lease by 20 years. The current lease term will last through 2037, signaling a strong commitment to the site.

The property sits at a signalized intersection with nearly 23,000 cars passing daily. Visitors to the site benefit from easy connections to major highways including Interstates 95 and 495. The CVS is close to an expanding retail area along Route 236 and Great Mills Road that features a strong mix of national and local retailers. Lexington Park itself is an affluent area with a prominent military presence that provides a $3 billion impact to the local economy annually.

About Ground + Space

Ground + Space is a net lease brokerage firm that leads with an emphasis on personalized relationships. Michael Zimmerman and team have curated a brokerage firm and investment sales platform focused on boutique amenities and down-to-earth service. Ground + Space is rooted in more than 20 years of experience aimed at providing the best data, relationships and success rates in the business. Interested in commercial real estate investment? Contact us today to find out more about our current listings!


Just Sold: Mount Dora Retail Strip in Mount Dora, FL

Ground + Space announced today the sale of the Mount Dora Retail Strip, a multi-tenant property in Mount Dora, Florida. Mount Dora Retail Strip is a 6,912-square-foot retail site that features three tenants: Hand & Stone Massage and Facial Spa, Marco’s Pizza and Kay Jewelers. Ground + Space Principal Michael Zimmerman exclusively marketed the property and represented the seller, a Florida-based development company. The property sold within one percent of the original asking price for approximately $3.26 million.

This multi-tenant property is brand-new construction along U.S. Highway 441 within a larger development that includes ALDI and Panera Bread. The three tenants all have new NN leases with a mix of corporate and franchise guarantees. All three leases feature scheduled rental increases and options to renew. In addition, the tenants reimburse the landlord for expenses relating to roof, structure and parking lot maintenance.

The property benefits from its highly visible location across from both Walmart and Target, along with high traffic counts (over 41,500 cars pass the site daily). Mount Dora itself is located within Orlando’s sprawling metropolitan area, which boasts a population of more than 2.3 million. Mount Dora is less than one hour from downtown Orlando and the area’s world-class tourist attractions, including Walt Disney World, Universal Studios and SeaWorld.

About Ground + Space

Ground + Space is a net lease brokerage firm that leads with an emphasis on personalized relationships. Michael Zimmerman and team have curated a brokerage firm and investment sales platform focused on boutique amenities and down-to-earth service. Ground + Space is rooted in more than 20 years of experience aimed at providing the best data, relationships and success rates in the business. Interested in commercial real estate investment? Contact us today to find out more about our current listings!


Single Tenant Net Leases Versus Multi-Tenant Net Leases: Which Is a Better Investment?

Commercial real estate presents investment opportunity in a variety of formats. Investors typically decide between either a single tenant net lease property or a multi-tenant net lease property. As both types of investment opportunities offer several pros and cons, preference is often circumstantial. Below is an in-depth analysis and comparison—read on to enhance your understanding of single and multi-tenant net leases.

What are single and multi-tenant net leases?

A single tenant net lease is a rental agreement between the sole occupant of a one-unit space and its owner or landlord. A multi-tenant net lease is a rental agreement between several occupants or renters in a larger, multiple-office property. Net leases require the tenants to assume responsibility for some or all of the additional costs associated with a commercial property on top of the agreed-upon rent. Accordingly, net leases are popular types of rental agreements in commercial real estate, as they benefit both the tenants and the landlords. Different forms of net leases, such as single, double or triple net leases, entrust the occupants with incrementally increasing responsibilities, which gives landlords and tenants an array of choices for various scenarios.

Single Tenant Net Lease: Pros and Cons

Single tenant net lease properties are often appealing to first-time investors because of their simplicity. With only one tenant to attend to, the management requirements are far less demanding. Single tenant net leases also typically average between 10-20 year terms, which is advantageous for long-term budgeting and planning. Additionally, single tenant commercial real estate agreements are very often designed as triple net leases, which almost entirely alleviate the landlords of property obligations.

However, investing in a single tenant property relies heavily on the quality of the sole tenant. If the occupant’s business fails or encounters financial trouble, the investor’s primary source of income is significantly limited if not eliminated. A completely vacant property has a detrimental impact on a commercial investment. Aside from losses associated with the vacancy itself, upkeep, improvements, insurance and other affiliated costs begin to diminish overall return rates until a new tenant is found.

Multi-tenant Net Lease: Pros and Cons

As multi-tenant net leases rely on a multitude of occupants, the likelihood of total vacancy is very low. Multi-tenant net leases typically average seven years, which leaves room for relatively frequent adjustments. Additionally, investors lean toward a multi-tenant property because they prefer to close on several units at once instead of several individual endeavors. This approach is often perceived as more efficient and more economical, as it reduces transactional closing fees and procedures.

Contrarily, a multi-tenant property also signifies increased duties and responsibilities. Multiple occupants require more active management due to specialized, individual needs. Furthermore, these properties are often considered a higher-risk investment, as they are more susceptible to significant value loss during an economic downturn and also require periodic capital contribution for maintenance or improvements. These risk factors combined with the typically higher turnover rate of multi-tenant property occupants result in higher interest rates from lenders.  

Interested in commercial real estate investment? Ground + Space is a leading commercial real estate brokerage firm that specializes in single-tenant and retail NNN investments. Contact us today to find out more about our current listings!


Just Sold: Mattress Firm in Pittsburgh, PA

Ground + Space announced today the sale of a Mattress Firm property in Pittsburgh, Pennsylvania. This 4,000-square-foot retail site is located at a visible corner location along McKnight Road, the prominent, primary retail corridor in this market. The property sold for approximately $1.9 million in an all-cash transaction. This is the 21st Mattress Firm property sold by Michael Zimmerman, both freestanding and within strip centers. Ground + Space Principal Michael Zimmerman exclusively marketed the property and represented the seller. The property was listed in conjunction with Pennsylvania broker Aaron Savin of ECHO Real Estate Services Company.

Built in 2013, this Mattress Firm property features a NN corporate-guaranteed lease with minimal landlord responsibilities and an additional option to renew the lease for five years. The lease’s rental rates are firmly in line with market rents along McKnight road, which are currently $36 per square foot of retail space. The property benefits from its location adjacent to The Block Northway. Additionally, the site benefits from synergies with several nearby high-end furnishing retailers, including At Home, Kirkland’s and The Container Store. The property also has easy access to downtown Pittsburgh and the 2.3 million people who call the area home.

About Ground + Space

Ground + Space is a net lease brokerage firm that leads with an emphasis on personalized relationships. Michael Zimmerman and team have curated a brokerage firm and investment sales platform focused on boutique amenities and down-to-earth service. Ground + Space is rooted in more than 20 years of experience aimed at providing the best data, relationships and success rates in the business. Interested in commercial real estate investment? Contact us today to find out more about our current listings!


What is Commercial Real Estate?

What is commercial real estate?

Commercial real estate includes any form of property or real estate used to produce income. Some businesses own the space they occupy, but most commercial real estate is leased from an investor through a net lease broker for one to ten-year terms. An investment lease brokerage firm acts as an in-between for the tenant and landlord or investor and as an advisor for all of their clients. These brokerages facilitate the sale and leasing of commercial properties for business or investment purposes. Distinct types of leases and exchanges are designed to accommodate the variety of commercial real estate property acquisitions.

Types of Properties

Commercial property encompasses many different kinds of spaces. They can be classified into several different categories including office, retail, industrial, multi-family, land and special purpose.

Office real estate is broken down into single or multi-tenant properties and categorized by classes A, B and C. Retail properties include single or multi-tenant buildings and shopping centers comprised of banks, stores, restaurants or strip malls. The industrial commercial real estate category is made up of an array of tenants and building structures, which typically involve construction, manufacturing or production plants and warehouses. Multi-family real estate covers all residential property except for single-family homes and, like office property, is graded for quality by classes A, B and C. Commercial land real estate is undeveloped property, including previously developed land that becomes compromised or condemned. Special purpose commercial property is real estate owned by investors or businesses that do not fit into any of the five main classifications, such as churches, entertainment spaces, hotels or self-storage.  

Types of Property Leases

Commercial real estate brokerages work with tenants and investors to establish a method of leasing business property that satisfies the involved parties. The primary types of commercial real estate leases include gross leases, net leases (single, double or triple), pass-through leases and percentage leases.

Gross leases are simple, rent-only agreements, that typically include agreed-upon future increases.  Single, double, and triple net leases are contract agreements that incrementally supplement the tenant’s financial responsibilities on top of the predetermined rent. Pass-through leases, or modified gross leases, are contracts that make the tenant responsible for a proportional amount of any combination of property expenses in addition to rent. Percentage leases require that the tenant pays rent as well as a percentage of the sales earned from conducting business on the rental property.

Types of Tax-Deferral Property Exchanges

Commercial real estate can be acquired through a few different forms of property exchanges that also allow the deferral of capital gain taxes. The Internal Revenue Service’s (IRS) tax code outlines these exchanges in sections 1031, 1033 and 721.

A 1031 exchange allows investors to exchange ownership of like-kind commercial properties without having to pay taxes on the appreciated capital gain. Section 1033 of the IRS tax code describes a regulation that allows the exchange of equivalent-use properties as a result of involuntary conversion or forced loss. Section 721 contains a tax deferral option that allows investors to exchange commercial property for shares in a Real Estate Investment Trust (REIT).  A 721 exchange puts the ownership and management of the property into the hands of a commercial real estate investment firm.

Interested in commercial real estate investment? Ground + Space is a leading commercial real estate brokerage firm that specializes in single-tenant and retail NNN investments. Contact us today to find out more about our current listings!


What is a Double Net Lease?

A net lease is a popular form of a commercial real estate lease where the tenant assumes certain financial responsibilities in addition to the pre-determined rental rate. Different variations of net leases exist to accommodate specific building expenses–single, double and triple net leases. The biggest difference between these net lease variations is how the additional expenses are divided between the landlord and the tenant. Here is everything you should know about double net leases.

What are the features of a double net lease?

In a double net lease, the tenant agrees to pay the property taxes and insurance fees in addition to the pre-determined rental rate. A double net lease gives the tenant more financial responsibility than a single net lease, but also requires the landlord to handle repairs and pay any necessary maintenance fees. In a multi-tenant building, the property taxes and premiums for property insurance can be split on a pro rata basis between the other tenants renting within the building.

What are the advantages of a double net lease?

Landlords may use a double net lease because it shifts most of the financial responsibility, and thus much of the organizational pressure and stress that comes with managing and paying multiple property expenses. However, as landlords remain responsible for the upkeep and maintenance of the property, they still assume a certain level of control over how the space is used and maintained. Additionally, tenants may opt for a double net lease because these contracts typically have a lower rental rate than a single net lease and less financial management than a triple net lease.

What are the considerations of a double net lease?

While a double net lease limits the financial risk for landlords, property taxes and insurance fees typically still pass through them to ensure these important expenses are paid correctly and in a timely manner. Accordingly, this can complicate this process instead of simplifying it. Additionally, tenants need to consider the property taxes and insurance fees and understand that the responsibility of these additional expenses may outweigh the lower rates in rent in some cases.

Interested in commercial real estate investment? Ground + Space is a leading commercial real estate brokerage firm that specializes in single-tenant and retail NNN investments. Contact us today to find out more about our current listings!

 


What is a Net Lease?

Commercial real estate leases fall primarily into two categories—either a net lease or a gross lease. The most common type of lease in commercial real estate is a net lease because it relieves landlords of serious financial responsibilities and gives tenants more control over how much they’re spending on certain services. But what exactly Is a net lease? Read on to find out everything you need to know about net leases in commercial real estate.

Features of a Net Lease

On top of the pre-established based rent, a net lease requires the tenant to assume responsibility for at least one, if not all, of the additional operating expenses associated with the property. Three different types of leases exist to determine which portion of these additional expenses are to be paid for by the tenant. A single net lease requires the tenant to pay both the rent and the property tax on the property, while a double net lease requires the tenant to pay the rent, the property taxes and property insurance for the space. A triple net lease requires the tenant to pay all of the expenses associated with the property, including the rent, property taxes, insurance, maintenance costs and repairs.

Advantages of a Net Lease

A net lease is a common type of lease in commercial real estate because it benefits both landlords and tenants. For landlords, it alleviates significant financial responsibilities of owning and operating the property. Net leases streamline the process of paying insurance and property taxes and make paying these expenses less complicated and stressful for the landlords. In addition, net leases give landlords a predictable source of income because they eliminate unexpected expenses and alleviate the financial responsibility of property taxes and insurance, which typically fluctuate over time.

Tenants experience significant benefits of net leases as well. Because tenants assume the responsibilities of additional expenses, net leases generally result in lower rental rates of the actual property. Additionally, net leases give tenants more property control because they are held accountable for at least a portion, if not all, of the property expenses. Accordingly, a considerable amount of property control is allotted to the tenant. Renting under a net lease gives tenants a closer experience of property-owning than a typical renter.

Considerations of a Net Lease

Net leases also can have some drawbacks if the building or property is not properly maintained and managed. For tenants, the maintenance costs might outweigh the lower cost in rent if there are constant major repairs. Likewise, most landlords prefer insurance and tax payments to pass through them to ensure the amount is correct and on time, which at times may complicate the process more than simplify it.

Interested in commercial real estate investment? Ground + Space is a leading commercial real estate brokerage firm that specializes in single-tenant and retail NNN investments. Contact us today to find out more about our current listings!


Single, Double and Triple Net Leases: What’s the Difference?

A net lease is a contract in which the tenant agrees to pay a predetermined price for rent as well as specified additional expenses associated with the property. These additional expenses can include property taxes, insurance, maintenance and repairs. How do you determine which of these costs the tenant is responsible for paying? Single, double and triple net leases exist to clarify which of these additional expenses are the tenant’s responsibility. Read on to discover the difference between single, double and triple net leases.

Single Net Lease

Single net leases are the least common type of net lease. In a single net lease, the tenant is responsible for paying all or a portion of the property taxes on the property in addition to the pre-established rental rate. While this financial responsibility shifts from the landlord to the tenant, most landlords still prefer the payment to pass through them to ensure the amount is correct and on time. Under a single net lease, the tenant assumes the least amount of financial responsibility for the space as possible within the limits of a net lease.

Double Net Lease

Under a double net lease, the tenant is now responsible for paying the property taxes and insurance for the space in addition to the established rental rate. All other expenses, such as maintenance and repairs, remain the landlord’s responsibility. Double net leases are particularly common in commercial real estate, and in most cases, landlords of larger commercial developments charge taxes and insurance expenses proportionally to the size of the leased space.

Triple Net Lease

A triple net lease removes the landlord from most if not all of the financial responsibility associated with the property. In a triple net lease, the tenant pays taxes, insurance, maintenance and repairs in addition to the rent. Triple net leases are commonly used for long-term periods (ten years or more) in freestanding commercial buildings leased to one tenant. Because this leasing method shifts the majority of additional expenses to the tenant, triple net leases typically have a lower rental rate.

Interested in commercial real estate investment? Ground + Space is a leading commercial real estate brokerage firm that specializes in single-tenant and retail NNN investments. Contact us today to find out more about our current listings!