Late Cycle Behavior of NNN Investors

Contributing Author: Sean O’Shea

Here we find ourselves almost nine and one-half years from the impact of the Great Recession of 2008-09. While the market conditions that led up to the public acknowledgement of the financial crisis, were years in the making, many observers could have foreseen the Storm Warnings.  I remember having my NNN Advisory Team in tow at the annual ICSC Regional event in San Diego in the spring of 2008.  As we wandered through the various vendors’ booths and exhibits, we passed the Lehman Brothers booth.  Displayed were the usual swag items that populate these kinds of industry events.  Sitting on a display table, I spied a pile of very well designed and finely detailed ‘Baseball-type caps’ with LEHMAN BROTHERS, emblazoned on the crown of the caps.  I suggested to my Team, that they may wish to grab one of them, as a souvenir of a “Soon-to be Bygone Era,’”; since these guys at legendary Lehman are going down, based on the structure of interest only loans and other deals that we had tracked in the prior few go-go years.  They all looked at me, as if, I was ‘nuts’; but, nonetheless, each grabbed their souvenir hats.  Now, a keepsake of lending period that contributed, mightily, to the Financial Crisis as it unfolded.

While all credible reporting sources in the Net Lease Sector, report that investment sales for 2018 appear to be keeping pace with 2017, it is, also, clear to net lease advisors, like ourselves, that we must, also, acknowledge that sales volumes have decreased and the length of time on the market of these assets has actually increased.

Acute NNN Market Intel versus merely Broker hyperbole is critical to making best investment decisions, whether a time-sensitive IRC 1031 Buyer or a portfolio buyer, trying to discern their best options.  Right now, there are some fundamental assumptions that interest rates are moving upward; and then, therefore, the cap rates in the NNN niche MUST CHANGE, too…but on what timetable?

In the recent past, that is to say over ten years ago, when rates moved upwards (remember, that historical circumstance in distant memory) there has been a documented 3-6 month adjustment period.  We believe that may be, exactly where we find ourselves, right now, in Q2, 2018. So perseverance and patience are both required.

Remember, once again, Not all NNN are the same”.


Sean O’Shea, Managing Director

The O’Shea Net Lease Advisory

700 S. Flower St. #2650

Los Angeles, CA 90017

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