1031's Future Puts Question Mark on Net-Leased Retail

Dollar-store retailers, including Dollar General, are among the most popular single-tenant development concepts in the net lease sector.

CALABASAS, CA—The big question mark hanging over the net lease retail sector is the fate of the 1031 exchange, which could be swept away amid changes to the tax code, says Marcus & Millichap. At the moment, the uncertainty’s effect on transaction volume or pricing has been “muted,” although that could change.

“Driven by investors’ desire to shift their portfolios towards less management intensive assets, 1031-exchange volumes make up a considerable portion of the net lease marketplace,” according to Marcus & Millichap’s fall report on net lease retail. Year to date, exchange-related buyers have accounted for more than 40% of transaction volumes. “As a result, the status of this tax provision moving forward will remain a major driver of deal flow and investment demand.”