In recent blogcast episodes, we’ve investigated new laws that may impact multi-family investments. In this episode, René discusses an excellent alternative investment: triple net properties.
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Patrick: Today we’re talking with René Nelson, CCIM, a well-known multi-family expert and commercial real estate broker, about important changes being proposed to Oregon’s landlord and tenant laws.
René, should I move my multi-family investments into triple net because of new laws?
René Nelson: You know, Patrick, many of my clients are doing that right now, and part of the attraction of a triple net property or a passive piece of property rather than an apartment or a multi-family complex is there’s no government regulation on rent, triple net deals usually have annual increases built right into the lease, and many of those properties come with a national credit tenant and it’s a corporate guaranteed lease. Most investors look at that and feel like it’s really a safe situation.
Are there other benefits I would see to owning triple net properties?
René Nelson: Absolutely. Let’s start with the building and the maintenance of it. Many of those triple net properties come with a lease where the tenant is responsible for all interior and exterior maintenance, often including the roof, the exterior of the building, down to even being responsible for picking up a popsicle stick in the parking lot. I tell my clients, “Drive by your property if you want, but don’t feel obligated to get out and pick up trash that’s in the parking lot, because that’s your tenant’s responsibility built into that lease.”
Now my multi-family owners that are transitioning out of tenants, toilets, and trash and having that hands-on process, now they’re going to the triple net property where it’s simply a check in the mail, there’s no government involvement with rent control, and the tenant maintains the property. It’s really ideal for a passive piece of real estate where you just want security of a good asset and you want to get a check in the mail with dependable income.
As a result, René, what kind of growth do you see in triple net properties?
René Nelson: Consumer spending is really robust right now. Lots of businesses are expanding. We have a really good residential real estate market. It’s showing that there’s strong consumer spending. People are still spending money. Businesses are expanding. There is a little uncertainty in the White House about tax reform, but if you really listen, what they’re talking about more is tax cuts and infrastructure spending. When you look at that and you separate that out, then you look back at, okay, what’s the average person that’s working, what’s their spending habits right now? They’re flocking to retail.
I know some people think, “Well, Amazon is going to put everybody out of business,” and yet many of the national retailers are continuing to flourish despite that strong online present spending, because what we’re watching is property owners, if big box stores like let’s pick a major grocery store chain, they may have a 40,000-square-foot space, and if they decide, “Hey, we’re going to close this division, we’re going to close this store,” what those property owners are doing to support the other businesses around them, they’re chopping that 40,000-square-foot building in half and they’re putting amenities in it like a restaurant or an urgent care facility and then service industries so that it gravitates more consumers to that property and it helps their surrounding businesses.
The buyer demand for triple net property is still really strong. There’s good inventory out on the market. There’s great opportunities. Really, at the end of the day, when you look at a triple net property, it gives that predictable income, hands-off management, and typically it’s got that corporate guarantee in the lease that I often talk about, because that’s so important. It’s different when it’s just a mom and pop signed on the lease versus a national credit tenant that says, “Hey, if for some reason we ever close this place, we’re going to guarantee you the rent until the end of our lease.” That really gives a passive investor peace of mind that they’re going to get their rent every month.
Patrick: Thank you, René. If you need more information, go to eugene-commercial.com or call René at 541-687-5871.
With all the uncertainty over new landlord/tenant laws, people with multi-family investments are taking a serious look at moving into triple net commercial property. And the Pacwest Commercial Real Estate Team is there to help; call or click today!