Why Net Lease Will Ride Out the Iran Crisis, US Election

CHICAGO—While tensions with Iran dominated the news cycle for the last few days, one observer thinks the US commercial real estate market, specifically net lease properties, should weather the storm.

“I don’t think it will have a major impact,” Randy Blankstein, president of The Boulder Group, said on Friday. “If anything, it probably has a positive consequence on our market because when those geopolitical events started, the 10-year Treasury actually came down.”

When the 10-year falls, Blankstein says investors will seek net lease properties. “Net lease is the bond market of real estate,” he says. “It is safe, conservative and has cash flow. That becomes more valuable in times of uncertainty. So, while geopolitical events are terrible for a variety of reasons, they are not necessarily bad for the net lease market.” In general, geopolitical conflicts often send money into American commercial real estate. “People view the US as a safe harbor in times of uncertainty,” Blankstein says. “The 10-year Treasury drop is good from a cash-on-cash perspective for the real estate market.”

While international conflicts may draw money into American real estate, domestic political uncertainty, specifically the 2020 presidential election, is a different story. “It is obviously the major event because it affects so many things,” Blankstein says. “There is so much uncertainty about it that people are going to view it as a green light for the next three quarters [before the election].”

Blankstein says the strong economy and gridlock in Washington are powering the market. “Having both parties in charge means not a lot really happens,” he says. “It’s a stable environment, and you can make your plans accordingly. Every time that shifts, things are thrown up for reconsideration.”

With such a wide range of policy proposals from the progressive Democrats to President Trump and a lot of skepticism about what the polls say (based on what happened in 2016), many investors might have to adjust on the fly after the election. “Clearly, people could change their strategy depending on who wins the election,” Blankstein says. “More people may be sellers if they think capital gains are actually going to go up dramatically. So, there may be huge fourth quarter activity based upon that.”

The good news for net lease investors is that, most times, they can weather momentary political changes as well. “Net lease is a long-term investment for the most part, and you could buy stuff in one political environment and sell in a different one,” Blankstein says. “These are five- to 15-year leases for the most part. People aren’t really looking at next year’s changes. They’re looking at where they are five or ten years from now and where their tenant is five to ten years from now.”