2003-2005 “Irrational exuberance” a la Greenspan, now famous quote;
2008-2010 Great Recession and aftermath: PTSD for many of us;
2016-2018 Recovery being fully realized after almost a decade;
2019-2020 And Beyond: A measure of Uncertainty???????
With the marking of George H.W. Bush’s passing, we are afforded, yet, another “Opportunity to take stock.”
For those readers and investors who were beneficiaries, in this past year of the Tax and Jobs Act of 2018, I suspect, we can readily acknowledge the positive impacts of stock market valuations, due, in part, to share buy backs; and, shortly, when we do our taxes at new rate structures. The Economy has continued… (Is it sustainable?). The introduction of Opportunity Zone Funds, as once-in-a lifetime tax incentives, if properly executed, are also very encouraging.
Again, if you are predicating your investment goals on 4%+ GDP, you may wish to recalibrate some of your expectations. We’ll see.
With the yield curve flattening and rates under acute review (with some WH political pressure); talks of Trade and Tariff Wars, etc.; there is beginning to be discussions of developing credible defensive postures for investors who seek predictable, stable, income streams in a less risky vehicle; rather than Happy Talk about 4+% GDP upward and onward.; and no chance of Recession in sight.
Enter the NNN sector of the real estate investment industry. Corporately guaranteed, investment grade net leased assets have been transacting for decades, sometimes as part of Sale-leaseback programs to afford corporate tenants efficient liquidity solutions; and investors solid investments, too.
They can serve as a diversification strategy for your fixed income and bond portfolio, which is how a mineral-based family in Fort Worth who saw these NNN properties, merely as a diversification play, introduced me to Net leased assets, two decades ago.
Initially, coming from a development background, where we created the asset value; rather than paying some third-party ‘a premium’ for taking that risk to create such investments and deliver a finished product with an income stream in place, I thought it was silly to pay someone else for a deal, that we, based on financial capacity and skill sets, could due in-house. I was wrong.
The Real Questions:
How much risk, as a private investor, are you willing to assume?
Do you know how to assess such actual risk in the first place?
Far better to invest in an investment vehicle with income, in place; a solid commercial tenant, in place with a long term lease; and little or no management responsibility = NNN Assets as your best option with the tax benefits and value accretion, if you research and secure the “Best-of Breed” NNN properties available.
Buying “Quality” is, always, the guidance in volatile times.
NNN assets have been the favorite investment vehicle of many IRC 1031 Exchange Trade Buyers, who have experienced a run up in value of their owned real estate and time to cash out (like Right Now); or if you simply want a more passive investment, NNN properties have served as a valuable vehicle to defer taxes and enjoy continued cash flows,with limited risk.
Cap rates are perceivably moving upwards; but the lag time for pricing changes in the open market, historically, have been 3-6 months with Fed rate changes in the recent past. So, market timing will be important, both, for time-sensitive 1031 Investors to make decisions; as well as, investors seeking a risk-averse yield.
Locking in your debt cost will be a critical factor, too.
There will be opportunity for all cash buyers and investors who can pull the trigger in a 14-21 day Due Diligence period to really exploit the market condition in the first two quarters in the Spring of 2019, we think.
As always, access to acute NNN Market Intel will inform your best decisions going forward. Our mantra, that “Not all NNN are the same“ holds true, now, more than ever.
Happy and Safe Holidays to All.S
Sean O’Shea, Principal
The O’Shea Net Lease Advisory
734 Silver Spur Road, Suite 200
Rolling Hills Estates, CA 90274
(310) 433-8851 – Direct
(310) 388-0212 – Fax
CA LIC #01438647