Diversification Strategies Emphasize the Value of Net Lease Investments

We’re having more conversations with investors who are interested in dipping their toes into the net lease waters.

Two recent, major acquisitions happily prove a point that we have been making for literally years now. Specifically, the two transactions, involving large amounts of capital and stock, as well as storied commercial real estate players, affirms the long-term and predictable power of net lease investing.

In late April, Realty Income Corp. acquired VEREIT in a deal valued at $11 billion.

The plan here is to spin off the office properties owned by both entities into a separate REIT.

What’s left? As DI Wired explains: “Realty Income’s portfolio will consist of approximately 10,300 primarily single-tenant properties located in the US and the UK. Total annualized contractual rent is expected to be approximately $2.5 billion.”

In another item, this involving Sam Zell—remember him?—his Equity Commonwealth has plunked down $3.4 billion for Monmouth Real Estate Investment Corp., his first venture into the industrial space.

Quoting Zell, Bloomberg reports: The deal provides Equity Commonwealth with a “high-quality, net-leased industrial business with stable cash flows while preserving EQC’s balance sheet capacity for future acquisitions.” Now, just for the record, no one ever lost following the lead of Sam Zell.

The message these two deals broadcast is the importance of diversification and the wisdom of doing so in the net lease space. We are still early enough in the post-pandemic recovery to question a single-focus investment strategy. Not to overstate the case, but it’s interesting that at a time when office assets are struggling, the Realty Income plan calls for a spinoff of this portion of the combined portfolio.

On an anecdotal-evidence note, we’re having more conversations with investors who are interested in dipping their toes into the net lease waters. Little wonder. If the topic is diversification, the conversation has to include a serious look at this stable, long-term source of capital and the relative ease of ownership without the headaches of upkeep.

Based on these various factors: The greater awareness of the sector that such major headlines—involving such mega players—provides; the anecdotal evidence gleaned from clients and potential clients; and the data that demonstrates the rationale behind such activity, we fully expect the business press to spread more ink on more deals involving the benefits of net lease properties.