Investment Demand for Triple-Net Leases Remains High

Triple Net leases are the new hot ticket in town. Scott M. Holmes, director of Marcus & Millichap’s National Retail Group has some insights to share on this growing trend.


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Late last year National Retail Properties and a private equity group acquired a large Arby’s franchisee. That, taken by itself, might or might not be news, but National Retail, a triple-net-lease REIT, ended up with 75 restaurants through that one deal.


As of the start of this year, the company owned about 2,800 properties across 48 states, many of them restaurants.


National Retail and similar REITs remain big buyers in the market for triple-net (in which the tenant pays the rent, the taxes and the property expenses), but there has been considerable change in the sector too.


Over the past five years, this market has shifted over to largely individual investors, 1031 exchange buyers or private groups.


Scott M. Holmes, director of Marcus & Millichap’s national retail group, contends that REITs are now net sellers, not net buyers.


For the 1031 exchange investors, restaurants are a good purchase because the eatery experience is tough to duplicate online and is also fairly easy to understand — though demographic and economic factors are at play here too.


“The institutions are not the big buyers they used to be,” said Holmes. “It is mostly mom-and-pops and private capital. And a lot of this is baby-boomer-driven. 1031 investors owned management-intensive properties for decades but now want fewer headaches.


Secondly, as a result of tax-law changes in 2017, where you invest is important: Investors are focusing less on such states as California and New York and more on income-tax-free states, such as Florida and Texas.”


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