NEW YORK CITY—There are three main factors to consider when underwriting any property: lease structure, quality of the real estate and tenant credit. That is according to Joshua Pardue, director in the New York City office of Stan Johnson Co. Pardue recently chatted with GlobeSt.com on small cap net lease investment transactions, how they fit into the overall net lease market, and the key to marketing those deals among other things.

GlobeSt.com: How do small cap net lease investment transactions fit into the overall net lease market?

Joshua Pardue:In today's net lease market, we are seeing approximately $48 billion dollars per year in property investment sales. The demand for product still outweighs the supply coming to market. As investment brokers, our job is to get creative in structuring new product that will meet investors' needs while creating significant value for the sellers of the real estate we typically represent. Net leases generate steady income as a result of the credit-worthiness of their tenant and behave much like a bond. Investment grade net lease properties like McDonald's and Walgreens have rent (income) guaranteed by the parent company, making them the most desirable products on the market. Small cap net leases, on the other hand, are often overlooked because it is more difficult to obtain the information that is needed to analyze the tenant's credit which brings more risk to the transaction. However, after obtaining the information and performing proper financial and market analysis, investors can find terrific risk adjusted returns or as some investors call them, “diamonds in the rough.”