Who is Buying STNL? Why?

Question

I still don't get it.

Who is buying buying STNL and why? I'm seeing CAPs even in the low 3s now in second tier cities.  Is it all institutional? REITs?

Trent Wyss · Answer

I think there is still opportunity in STNL if an investor is willing to have a regional tenant over a national one. Regional tenants are not necessarily riskier than national tenants. An example would be an outpatient facitliy, it may not be a name brand to the general public, but very well may have a strong regional healthcare system signing the lease.

Joel Owens · Answer

Tons of people buying NNN. I am busier than I have ever been and do no advertising they just find me. All NNN is not created equal. Most of my clients have 8 to 9 figure wealth that are individuals. I do have some at 7 figure working their way to eight figures.

If you can imagine there are tons of people that owned SFR or multifamily and dealt with headaches for up to 10 years and had big upsides selling. Their net worth went from say 300k to 2 to 3 million and they make maybe 200k and up from job or business. They want to now buy NNN say 3 million property with 1 million down and get 5% cash on cash return and then with mortgage paydown equity build up hit about 10% annual return before tax benefits.

They do virtually nothing owning these assets with investment grade credit tenants. Once you make millions to tens of millions or more and financially free your outlook of work for yield tends to change drastically. If you make millions a year than buying a ground lease at a 4 cap with under market rents and getting 10% rental increase every 5 years could sound great. Some of these investors already own speculative assets as well as part of their portfolio so want to allocate a certain percentage to NNN even for less yield.

The yield for NNN stabilized depends on the price range also. 2 million NNN like 200k home. Everyone looking for the diamond and a dozen offers on it within 48hrs. You get too 5,7,10 million NNN still competitive but cap rates a little higher and not as many buyers maybe 2 to 4 others etc.

I buy value add STNL for cash and reposition. I love the space myself and can make tons of money in it.

Tanh Truong · Answer

Wealthy whales looking for places to park money with the real estate benefits (ie. tax depreciation) is my guess.

Joel Owens · Answer

Will you might deal in circles of people with different wealth levels of objectives. I can have someone in residential say they never heard of NNN and who buys it? That is because they do not work that asset class day in an day out and deal with those types of buyers.

Some apartment guys will say oh commercial if you buy it then who can you sell it to there are not many buyers. That's a load of BS they just do not have the network and do not run in those circles. I know tens of thousands of owners and buyers that are in the space.

I can tell you I am already over seven figures in commissions this year. I stay busy around the clock. I haven't had as much time to come to the site lately between my clients and my own investments in the NNN space.

Typically someone buys NNN at say 5 plus cap rate and debt in the 3's (currently treasury went from 150 in January to 280 now) so rates more 3.9 to 4.0 versus 3.5 with lenders. When you model that out with software cash on cash is about 5% and then with mortgage paydown hits about 8 to 9% without including tax benefits. With inflation you have normal inflation economic cycles but than anomalies like coronavirus. That has pushed inflation higher than normal cycles so nobody knows for sure but I think corona related inflation starts going away end of this year into next year where it has more minimal impact unless another resurgence occurs. Then you are left with normal economic inflation. Inflation had been at 2 to 3% but now at 8.5% or so. So hyper inflation right now. Passive assets generally would not keep up with that level of inflation. The people that have that higher wealth don't need very much of their money to live on. Example I can live on 100k to 150k a year comfortably and invest the millions to make more millions. So I do not worry about inflation as much. Some investors will diversify between NNN and other more active type investments with more headache and risk to try and blend total yield upwards. I don't do that instead my clients buy stabilized and I buy value add NNN myself for cash to reposition.

Hope my answer helps.

Ronald Rohde · Answer

3% for a national credit tenant on absolute lease is better than any Tbill. You have to understand what you're competing against.

The amount of sweat work for 3% is about 3 hours a year. Most people in this forum are trying to build wealth, not preserve it (yet!)

Account Closed · Answer

That's awesome Joel. I've never had anyone hound me for NNN acquisitions..ever!

Can you walk me through that sample 10% annual return number with IRR and multiples with 30-30% leverage factoring inflation? I'm a bit slow on the modeling.

Account Closed · Answer

Gorgeous properties- single tenant, NNN, new construction, well known credits, QSRs with long lease terms and corporate backed. Anybody sourcing core investments to be 7,8,9% returns using around 40% debt?

John M. · Answer

Wealthy people that need a place to park their cash will invest in these kind of returns.  Not sexy, but not volatile either.  They also get to pass this wealth down to their heirs with a step up in basis.

Paul Smythe · Answer

I assume it's institutional. 3% initial low-risk returns with increases could make sense if you're a bigger player with money to park. They'll still get the other benefits of real estate, so better than nothing.

Definitely not my personal strategy, but I'm not a whale with $100m to invest.

Who is Buying STNL? Why?

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