NNN Approach to RE Investment

By Marilyn Kane, CEO, Iridium Capital: There is no way of figuring what appetite potential investors have for real estate investing…especially their first time out.

Marilyn Kane CEO Iridium Capital LLP

There is no way of figuring what appetite potential investors have for real estate investing … especially their first time out.

Being in the industry, we are delighted when one is drawn to investigating real estate as an essential part of any balanced portfolio. So much of investors’ appetite depends on their experience with the ups and downs of past markets and their tolerance to wait, or not, to accrue the value they anticipate out of this investment.  The biggest point of distinction is the professional real estate investor vs. the individual who wants to explore what is available in their price and risk-tolerance range.

Since we know the professional will do what they do whether that is development, shopping centers, multi-family, student housing, or add-value opportunities. These professionals know what they want and stick with what they know best.

What is interesting to us professionals is introducing opportunity to the novice investor for his or her first foray into real estate investing. Steering that individual is less of a challenge when the product we offer mitigates as much risk as possible, and there lies the advantage of net-lease investing.

When an investor can mitigate most of the risk as well as eliminate most or all of the maintenance of a property, not have the responsibility to pay real estate taxes, and not be involved with payments of insurance premiums (except being certain it is paid by the tenant), most of the real estate headaches have been skirted. All of these expenses are taken on by a tenant and documented in a fully negotiated net-lease prior to purchase.

There is still adventure in the hunt: where might the property be? Does one pay a premium to be in a metro area or are the returns such that a secondary or tertiary part of the country suffices?  Is there an emotional need to see the property in vicinity within driving distance?  Does it matter? There is a vast variety in the size of properties, from a convenience store, right up to large mega-warehouse facilities that service a large metro area.

The beauty of net-lease investing is that there is something for everyone. The sectors are varied and interesting, from bank branches to drugstores to fast-food restaurants and medical/dialysis centers. Taking a step further in mitigating the risk of this investment is obtaining a property that has a corporate guarantee on the rent from an investment-grade corporation. Now we are looking at what is sometimes referred to as a “coupon clipper,” not wanting that terminology to take away from the quality of this investment.

Interestingly, if one is not ready or able to own a true triple-net property on his or her own or by pooling with other individuals to create an L.L.C. to make this purchase, there are funds that enable investors to become members of a fund at various entry levels that specifically invest in net lease properties. The criteria that a fund utilizes are crucial for the success of that fund. For instance, what strategy is there for purchase of a long-term vs. a short-term leased property, what is their hold period, what accounting devices are employed, such as cost segregation, to boost returns; what are their fees for due diligence, acquisition, and market savvy to produce the best possible returns for their member investors, and how experienced and successful have the fund managers been in the past. All of these variables are part of the exploration into that first net-lease investment.