Trends in Net Lease REITs

NEW YORK CITY—The chief investment officer at the net lease REIT ARCTRUST, Jason Kessler, has recently observed the following trends:

“We see net lease REITs where dividends are much lower than previously. They are still trying to achieve certain metrics on their acquisitions which has led them to get further out on the risk curve,” says Kessler. That might mean buying different kinds of products such as car washes or getting further out on the risk curve from a geographic standpoint.

He sees another trend of portfolios where there are 20 to 30 properties under a master lease which allows justification of expansion and tolerance on the risk curve.

“You buy 30 properties that are all governed by a master lease. One lease in place handles and encumbers all 30 properties,” explains Kessler. The retailers can’t select which of the 30 properties are most successful. They end up paying rent on all 30.

He continues, “So basically the primary properties achieve above market results and provide additional funds to pay for the ones that aren’t achieving results. It’s a way of diversifying the locations and the properties all become cross-collateralized and cross-defaulted on all of these pieces.”

Kessler is also noticing a lack of quality real estate coming to the market due to a reduction in the expansion of retailers. This is confining the amount of new product that can come to market.

As part of his job at ARCTRUST Kessler is working with five preferred joint venture developers who are developing single tenant net lease products up and down the East Coast. ARCTRUST is a privately-held REIT focused on acquiring, developing and financing net lease properties. Since its creations 30 years ago, the firm has handled over 500 deals.

With his decades of experience, Kessler shares three key pieces of advice: (1) Focus on real estate; (2) avoid situations of exorbitantly high rents; (3) stick to what you know.

Kessler will speak on the “Net Lease REITs: Bull or Bear” panel at the GlobeSt.com event. John Massocca, VP, equity research REITs at Ladenburg Thalmann & Co. will moderate the discussion. Other panelists include Daniel Donlan, SVP, capital markets at Essential Properties; Amar Goli, managing director at Sands Investment Group; Dan Lovitz, SVP, acquisitions at VEREIT; and Matt Partridge, CFO & COO at Hutton.

Learn more and register for GlobeSt.com’s 17th Annual Net Lease Conference. It begins on the evening of April 3 at 6:00 pm with a networking cocktail reception at Bryant Park Grill. The program continues on April 4 at the Roosevelt Hotel from 8:00 am through 3:30 pm with breakfast, panel discussions, lunch and networking breaks.