Why A Net Lease Is Like 'A Bond Wrapped In Real Estate'
Markets are scary. Just this week, Bridgewater Associates chief investment officer Ray Dalio warned that the economy is at or near its best, and that the next downturn is likely to be ugly.
Where there is risk, there can be reward. But, Calkain president and CEO Jonathan Hipp said, the time may be right for many individual investors, and even large institutions, to make a safer bet with a low fluctuation in return potential and far less management and legwork than most conventional investments.
Most economists agree that we are in the latter portion of the current economic cycle. In light of that, consider what is on the line: Over less than four years, the Treasury Deptartment estimated that household wealth took a $19.2 trillion hit from the 2008 financial collapse.
Net leases can act like “bonds wrapped in real estate,” as Hipp put it, but without the risk of being bumped to the back of a long line of investors in the event of a default from inevitable market peaks and troughs.
Even in the event of a tenant default, if an investor buys good real estate, Hipp said, the asset can be re-leased and the income spigot can be turned back on. And the appeal of a net lease goes beyond trimming risk. It is also about making one's life easier.
Rather than juggling multiple tenants with leases ending at different times, each subject to the whims of the market, a net lease gives an investor just one number to worry about: the monthly rent the tenant pays.
A stand-alone, single-tenant property, or a portfolio of them — fast-food restaurants and banks are common examples — can make investors lives easier as they scale back the complexity of their investments, say, as they knock on the door of retirement, or look for reliable income to leave to heirs.
Hipp recently closed a deal in which a high-net-worth individual’s four heirs were left with a single multifamily investment. He helped them switch the investment into four separate net leased pharmacies, allowing them to benefit from the passive, hands-free character of a net lease.
Recognizing that the next generation inheriting that business would have constituted a burden, the client used a 1031 exchange to ensure that his heirs could be taken care of with a reliable, hassle-free income stream.
These investments can also make sense for large institutional investors like REITs or pension funds looking to balance out risk and return, evidenced by the number of public net-lease REITs and pension funds actively involved in net leasing.
“Really, there’s not much you have to do except get your check in the mail,” Hipp said.
We are thrilled Calkain has joined us as a founding partner of our Bisnow Beltway Bash, to be held at the TAO Nightclub in the Venetian on Monday, May 22, from 5:30-7:30 p.m. in Las Vegas. Register here.
