Single-tenant triple-net (NNN) investments are “like the bonds of commercial real estate investing,” according to Drew Isaac.
And with the stable income generated by leases from national tenants such as Walgreens and Starbucks, they are increasingly popular with investors seeking higher yields than they can achieve from Treasurys and many other fixed-income vehicles, but with less risk than from investing in other types of commercial real estate or stocks, he said. Nationally, the blended average yield last year for a single-tenant NNN asset was 6 percent.
Isaac lives and breathes single-tenant NNN deals.
A snapshot of the national single-tenant NNN market. Source: Marcus & Millichap.
As the first vice president and director of the Net Leased Properties Group in the Denver office of Marcus & Millichap, 80 percent of his business is for single-tenant NNN buildings.
Marcus & Millichap, nationally, sells more single-tenant NNN investments than any other commercial real estate brokerage firm in the nation.
“Marcus & Millichap is the market leader for the single-tenant triple net sales,” said Bob Kaplan, vice president and regional manager for the Denver office of Marcus & Millichap.
The latest data available shows Marcus & Millichap captured 18 percent of the total $39 billion single-tenant NNN market.
In the Denver office, single-tenant NNN sales account for about 15 percent of the overall business of the brokers.
Most of the single-tenant NNN deals are in the $1 million to $4 million range and more than 90 percent of them are anchored by retail tenants, he said.
Bob Kaplan
Both Kaplan and Isaac on March 8 will be among more than 20 single-tenant NNN experts sharing their knowledge at the inaugural Single Tenant NNN Conference & Expo sponsored by the Colorado Real Estate Journal.
It is expected to be this year’s largest single-tenant NNN conference.
“There is a lot of this property type in the marketplace and it is growing,” noted Jon Stern, founder and owner of CREJ.
The conference begins at noon and ends at 4:45 p.m. It will be held at the Hyatt Regency Aurora-Denver Conference Center. It will start immediately after the 2018 Multifamily Conference & Expo that also is sponsored by CREJ.
Thankfully, the recent tax law changes did not diminish the appeal of single-tenant NNN investments, according to Isaac.
“The big win was the 1031 exchanges were kept in the tax law,” Isaac said.
Both he and Kaplan said almost every single-tenant NNN investment utilized a 1031 exchange to defer capital gains tax payments.
Many investors trade apartments or offices for the safety and stable income of a single-tenant NNN investment, Kaplan said.
Isaac said his investors include “everyone from private capital, to family offices and private investors to institutional investors and publicly traded REITs. It really covers the entire gamut.”
This 2,200-square-foot Starbucks-anchored building in Colorado Springs is being listed by Marcus & Millichap for $2.73 million. It has a 4.75 percent cap rate.
While most deals are $10 million or less, there can occasionally be investments like a Home Depot distribution center in the $20 million range, he said.
The supply of investments primarily comes from developers building retail stores and sale-leasebacks, sometimes to fund tenant improvements and major remodels from franchisees, Isaac said.
“And many will sell their buildings five years into a 20-year lease and for typical reasons like the death of an owner, a divorce, a business partnership change or a loan maturity,” Isaac said.
Drew Isaac
In addition to Isaac and Kaplan, others scheduled to speak at the single-tenant NNN conference include:
- Jason Schmidt, executive vice president, JLL;
- Matthew J. Henrichs, senior vice president, Investment Properties | Retail & Net Lease, CBRE;
- Kevin Matthews, managing director, SVN Denver Commercial;
- John Witt, partner, brokerage services, NavPoint Real Estate Group;
- Zach Wright, associate adviser, Pinnacle Real Estate Advisors;
- Scott R. Saunders, senior vice president, Asset Preservation Inc.;
- David McCurdy, senior vice president, Midwestern Region, EXCHANGERIGHT;
- Jeff Hertz, senior vice president, 1031 Exchange Specialist, Cantor Fitzgerald Capital;
- David A. Lederhos, senior vice president, commercial real estate banking, Mutual of Omaha Bank;
- Sara Croot, client manager, Chase Commercial Term Lending;
- John Markovich, senior vice president, FirstBank;
- Brandon Rogers, principal, Terrix Financial Corp.;
- Phillip Gause, vice president, Marcus & Millichap Capital Markets;
- Erika Shorter, director, Colorado acquisitions, Evergreen Development;
- Tyler Carlson, managing principal, Evergreen;
- Jimmy Balafas, principal, Kentro Group;
- Lucy Dinneen, managing partner, Rocky Mountain and Northwest Regions, Cadence Capital Investments; and
- Chris Allen, development partner, Verdad Real Estate.
In addition, officials have been invited from retailers including Starbucks, Arby’s, 7-Eleven, Taco Bueno, Walgreens and Good Times Burgers & Frozen Custard.
