NNN Leases Have Special Risks

The property was constructed by Panattoni Development as a build to suit in 2000. The building was occupied for the last 15 years by Heald College. The owners recently hired our East Bay Office Team to lease and/or sell the investment.

This is a unique campus setup with over 31 classrooms & labs (most equipped with projectors, desks, chairs, and office furniture wired for internet and phone). There is a large training room that can accommodate up to 150 people, and a fully equipped cafeteria. The front entry is served with a separate lobby that would allow for full building identity to a single user or one with multiple programming uses.

When Heald Colleges’ parent company, Corinthian Colleges, went bankrupt earlier this year, it left 28 campuses across the United States vacant. Single tenant net leased properties are the 1031 exchange asset of choice for many real estate investors looking for more passive income. However, these assets are not without risk. Clearly Heald’s bankruptcy and its eventual demise points to specific risks of single tenant assets. In the case of Corinthian, regulatory changes at the hands of the US Department of Education, sunk the operations of this corporation.

Single tenant net assets often look more secure. On average, cap rates are lower because these investments don’t have the typical vacancy and turnover risk of a multi-tenant property. However, what most clients (and professionals) don’t consider is the elimination of the real estate risks like leasing—for example—concentrates the risk of credit worthiness and industry changes. We continue encourage clients to consider single tenant net leased assets as they move down the risk spectrum to safer returns or as a means to diversify a portfolio, but to do their homework on company credit and engage an investment advisor like a Chartered Financial Analyst to advise on that risk.

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