Fund Steers Small Investors to Triple-Net

NEW YORK CITY-Net lease certainly isn’t the sole province of smaller-scale investors. Industry leaders such as CapLease, W.P. Carey & Co. and US Realty Advisors work on behalf of institutional clients. Yet Iridium Capital founder Marilyn Kane, a 24-year veteran of commercial real estate, believes the triple-net lease sector is a natural for first-timers, and has launched the company’s first hedge fund with an eye toward cultivating what she calls “mini-moguls.”

The recently launched IC Income and Growth Fund is “very much a single-strategy fund,” Kane tells GlobeSt.com. “We really wanted the investors to become well versed and comfortable with this particular aspect of real estate, one that we felt it was time they learned about as a more prudent real estate investment than so much of what they’ve been hearing about.”

Minimum ante for an individual investor is $50,000. “It was actually the original concept—to have somebody who had not traditionally been involved as a developer or owner be able to say that they could get involved in real estate," says Kane. “We thought that amount would be extremely appealing” for the newcomer.

She adds, however, “It’s not actually the goal of the fund to have all $50,000-level investors,” because Iridium also hopes to attract family offices and, eventually, pension funds. “But I liked the idea of it being something that's available to someone without their having to be very experienced in real estate,” says Kane, who co-founded Butler Kane in 1992 and merged the company with Sperry Van Ness in 2007. “We all hear about the big shots and the moguls, but what’s left for the other guys--the mini-moguls, you might say?”

The idea is to cultivate such mini-moguls, “and to have them really take pride of ownership in the fund,” Kane says. “They might not be owning bricks and mortars per se or collecting rents from tenants, but there will would still be a pride of ownership because they would have an understanding of why their managers chose these particular properties and all of the criteria that go into making that choice.”

For neophytes, Kane feels, triple-net represents a safe point of entry. “The safety is the lower risk that’s involved,” she says. “For so many people that are making investments, the time has come for that; they don’t want to take the big swing. But what is inherently interesting about net lease is that one does not have to be experienced as a manager of real estate, and one does not need to have a staff of accountants to take care of all the inherent implications."

A triple-net property, she says, has the tenant already in place, “paying all of the maintenance charges, all of the real estate tax and the insurance. These are all aspects that add to the expense of owning real estate; with a triple-net-leased property, the tenant is taking on all of that responsibility. They also pay the rent, and that is where our investment comes in. We accrue the rent and distribute it back to investors.”

The fund will focus on property sectors that lend themselves to triple-net: medical, industrial and retail. “These are easily single-tenanted,” Kane says. “We’re not talking about office buildings or multifamily.”

The sector in which a triple-net asset resides counts for more than its geographic location, Kane says. “It’s not necessary to go into a depressed area to buy a CVS, but there might be a very good reason that CVS looked into that particular area,” she says. “We have the benefit of getting that information on why they made that choice.” Price points can vary widely; “you have $500,000 triple-net properties and you have $40-million properties.”

The fund’s target is $100 million, after which Iridium will launch its second one. Future funds will operate with the same basic principles in mind, although Kane says there may be a focus on a particular tax vehicle with a given fund.

Since Iridium’s first fund was conceived about a year ago, cap rates for net lease have remained fairly consistent, and Kane expects they’ll stay that way. “Net leased properties work very much like a bond,” she says. “There’s a certain rate of return and it hasn’t varied much. We’re not looking at properties that pay less than 7.25% or 7.5%.”