How Single-Tenant Net Lease Is (Not) Surprising


Tom Chichester, Managing Director

IRVINE, CA—You might have missed it, but net lease is getting another turn in the spotlight. And while the sector has been a bit of a darling, the question remains if a bubble is forming as the pool of investors continues to expand. That’s not the case, says Tom Chichester of Faris Lee Investments, especially if you’re looking at the single-tenant variety. met with the company’s director in this EXCLUSIVE interview for the ICSC Western Conference & Deal Making event to get a better look at why this class continues to draw interest. Can you tell me how the single-tenant net lease (STNL) market is faring today?

Tom Chichester: Demand for STNL product throughout the nation is strong. It continues to be attractive to a diverse buyer pool, which keeps competition high and cap rates compressed. With interest rates still historically low and the stock market as unpredictable as ever, new investors are flocking to this space with its promise of moderate risk and comparatively attractive yield. What types of buyers are the most prevalent for this asset class?

Chichester: Buyers in 1031 exchanges and foreign investors are the most aggressive right now, though it’s a popular category for all types of investors. In particular groups as diverse as institutional buyers vying for well-located, A-plus properties, to individual business owners and retirees. Finally, professional real estate owners that have traditionally owned apartment and multi-tenant retail are looking to diversify their portfolios with STNL assets as well. STNL assets offer the benefit of passive or near-passive income, which appeals to almost anyone for obvious reasons. Aside from passive income, why else are STNL investments attractive to investors?

Chichester: Many investors see this type of ownership to be a relatively safe one especially if there is a long-term lease in place with a quality tenant. Even with a low cap rate – many being in the 4% to 6% range – the income is better than alternatives such as bonds and CDs which offer very low yields. Typically there is little to no management involved, with predicable revenue, attractive financing, and many unique tax benefits which only real estate provides. What are the risks for STNL properties?

Chichester: Unlike multi-tenant assets, a single-tenant asset is either 100% occupied or 100% vacant. Patience and discipline are required to invest in today’s market. You have to be exhaustive in qualifying the tenant, location, lease term, and rental rate. It is also beneficial to have a plan in place if a tenant’s lease is due to expire or if their sales are weak.


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