The following Q&A was completed as part of our conversational Commercial Real Estate FAQ Interview Series, we hope you find it helpful:
When you have a national publicly traded company standing behind your lease, you have security in your investment. You’re not dependent on location or performance, as you’re guaranteed payment from a nationally recognized brand. You’re less likely to find yourself with surprises, and it works out to be a more secure experience for those who would prefer to enjoy cash flow from their investment without surprises. Working with an investment team of attorneys, brokers, and accountants can help you to better get to know this investment world while assembling your own team.
Richard Wilson: Why is it that triple net commercial properties are often nationally traded versus more locally or regionally traded?
Peter Von Der Ahe: Probably the single biggest driver for certain investors with these is the credit of the tenant, so if you have a national publicly traded company that is standing behind the lease your rental payments are not dependent on performance of the one location that you’re buying. Your rental payments are guaranteed by a company, and in this example that we’re talking about, in theory you’re backed by a company that has many locations across the country. So, that’s worth something. If you are entering into a retirement phase of your life, where you want to have less day to day management, your main drivers are “I want income security, and I want consistency, and I actually don’t want surprises, either on the positive or the negative.”
It’s actually more important to you to just have a steady stream of cash flow. So that’s why you see many of the brands that fall into that triple net category that are national. When you get into this, I’ll just add, this is also another area of this asset type where you have to look at the lease because you have to look at who’s actually standing behind the credit. Sometimes there are franchisees that may be a national brand, but you may not be getting national credit, and so on and so forth. So you have to work with experts who really know that space and part of the assembling of your investment team, which is accountants who know about this, attorneys who specialize in this, and then also from the investment world, brokers and what have you.
Richard: Sure, makes sense.