Joel Owens is an entrepreneur, investor, triple net lease expert, and broker. In this episode, we discuss NNN leases, which type of commercial property make sense for your investment strategy, current trends in the real estate market, and so much more.
Joel specializes in triple net leases, both single-tenant and multi-tenant. He has experience in commercial land development and large multifamily. He is currently the Principal Broker at NNN Invest.
NNN Space and Market
He prefers the passive nature of the business and dealing with businesses and commercial landlord laws instead of residential tenant laws.
"In Georgia, the dine-in sector is only about 8% down from pre-Covid levels. Other states in the North and Northeast are still down 45%."
Many investors that invest in residential real estate may underestimate the demand for single tenant NNN and neighborhood street retail commercial spaces. Right now, Joel is seeing multiple offers close to asking price within an hour on newly posted deals. Street and strip commercial space is very desirable right now and investors in this asset class do have some options for customization of the leases and options to consider for the different tenants that look for these spaces.
He sees many high net worth people move to this space for a strong stable return that doesn't fluctuate. With a cash on cash of 6%-7%, and 10% IRR before rental increases, investors are safely receiving passive cash flow that outpaces inflation.
Anything 3MM or below in price, many offers are cash buyers. Above that level, larger properties are primarily acquired with debt.
"With an apartment building, there's a certain breakpoint to where you're going to start making money at the tail end of that project... until you get it fully stabilized, you haven't seen that maximum value. Sometimes that can take a 5-10 year horizon. With single tenant, you can reach the full value and upside immediately."
Financing
For a single family home, lenders will look to finance 70-85% of the value of the asset and perform checks against income and credit history. In the street commercial space, lenders are looking more closely at the asset than the borrower, and will look heavily into the tenant as well. Depending on the property, the tenant can be considered up to 80% of the importance of the terms, with the actual status of the investor at 20% importance.
With an investment-grade tenant or large franchise, lenders are usually looking for about 30% down. With a smaller franchise or a mom and pop tenant, lenders may look for 40-45% down. Lenders also come with other requirements. The net worth of the investor generally has to be greater than the mortgage balance. They also may look for additional liquidity of 10% of the deal after the down payment.
Current Economy and Real Estate Environment
Joel see all of the migration and growth is headed to the warm-belt states, such as the truth south, and the "tweener" states such as NC, SC, and TN.
In the colder northern states, there are still pockets of high-income people. In the south, there are more rings and layers of growth around economic centers. Not many tenants are looking to expand into this northeastern states. There are vacancies in these areas, and no vacancies in the south and southeast.
The big box stores are more attractive to REITs, insurance companies, funds, and other large institutions. Joel focuses more on the smaller spaces. Neighborhood small retail centers that are close to suburban areas add massive convenience to customers that come to visit those tenants. The smaller deals provide a much lower risk of overexposure in the event of a market or economic downturn. With a larger number of smaller properties, investors can customize leases depending on the tenant type.
Learn more about Joel and his work: https://nnninvest.com/