Today's Most Important Investment Element

The compilation of real estate, credit and lease term has always been the largest question mark of valuing a net leased investment. However, when the debt markets are not providing sound footing and investors are looking for higher overall returns, the one factor that must always be considered is “What is the true value of the real estate ?” There was a time when someone could look at a Walgreen’s in a tertiary market and underwrite the value the exact same as a Walgreen’s in Midtown Manhattan. However, while the credit and lease term may be identical, the real estate has drastic differences.

In today’s investment market, that real estate fundamental has moved into first position as it ranks against credit and lease terms. We are seeing once sound companies struggle in this economic cycle and, in some occasions, leaving behind vacant buildings.

Therefore, the questions begin to arise. How strong of a location is a site? What can be done with the land and/or building if the tenant vacates? And what expense may the investor have to incur if a vacancy arises in their once passive net lease investment? All of these factors have become more prevalent in recent times and will most likely stay a large part of investors’ conversations for years to come.