Guardian Advisory is bullish on the single-tenant net lease market. The firm launched its first single-tenant net lease-focused fund earlier this month, targeting a $50 million fund raise, and says that the asset class has historically low volatility and offers investors a passive management style. In today’s environment, single-tenant assets are also offering competitive yields compared to other asset classes.
“Single-tenant net lease properties is a market with historically low volatility that appeals to investors seeking passive investments,” John Halvorson, a principal at Guardian Advisory, tells GlobeSt.com. “For example, for properties targeted by the Guardian Net Lease Fund I, tenants are responsible for all physical maintenance of the properties, including structure, roof, HVAC, and parking, as well as property taxes and utilities. This level of certainty of net cash flow and low levels of deferred maintenance results in low volatility for property valuations found with these properties.”
David E. Hooston
As other asset classes have already matured, retail and single-tenant assets in particular are earlier in their recovery cycle due to challenges with ecommerce competition. As a result, the asset class is now offering better yields. “The NNN net lease investment category today offers competitive yields and returns against other real estate categories, with lower quantifiable risk and marketability; the ability to transact the sale of these properties in just 60 to 120 days,” David E. Hooston, a principal at Guardian Advisory, tells GlobeSt.com. “This desirable combination of benefits is hard to find in the real estate industry, or in other investment categories today, which is why so many investors are drawn to single-tenant NNN net lease investments.”
To take advantage of the benefits in single-tenant net lease, Guardian is planning to focus on properties with in-place, long-term leases and national credit tenants. This includes household names like Walgreens, CVS, O’Reilly Auto Parts and Dollar General. These offer a high level of stability and reliable ROI,” says Halvorson. “The fund’s investment properties will have diversity of geography and purpose, and industry diversification with some level of insulation from the Amazon effect. “Specifically, we will be targeting properties in secondary markets outside of California, primarily in the sunbelt region—stretching from Texas to Miami. The markets we are targeting include Phoenix, Dallas and Fort Worth—each of which continue to experience good economic growth, with weather that tends to be less harsh on properties which significantly reduces tenant’s likelihood of unintended deferred maintenance.”
The fund aims to aggressively acquire properties throughout the US in this niche. “Our goal is to invest in 30 to 40 properties ranging from 1,500 to 15,000 square feet,” says Hooston. “Targeted properties will be strategically situated in premier locations with high traffic counts and existing or potential high store sales.”