“Net lease
has been
the go-to
asset class
for people
doing multi-
layered 1031 deals.
Some buy these assets
only as a placeholder of
value.”
invested in several retail facilities and one
assisted-living asset. “There’s still going to
be strong demand for well-located, quality
net-leased properties that have strong
investment-grade tenants with good lease
terms,” Williams contends. “If you have all
those three elements, you’ll definitely find
investors and buyers for the property.”
In the retail sector, competition in his
firm’s niche—net-leased properties in the
$1-million to $5-million range—will con-
tinue to be fierce, he points out. “A lot of
developers who in the mid-2000s were
focused on larger developments have now
scaled back and gone after the single-tenant
or small multi-tenant, net-leased develop-
ment projects because they’re less risky and
easier to finance,” says Williams.
SEAN SHANAHAN
Iridium Capital
When asked whether the high investor
interest in net lease will ultimately send
prices skyrocketing, Pruett says, “As we
have seen over time, all markets are cycli-
cal. If one employs the right strategy and is
disciplined, you can avoid or structure
investments to ride through overheated
markets. I do think there will be geo-
graphic centers that overheat, which has
been the case historically—these have
often been the coastal regions. But this has
been true in all asset classes, whether or
not they are net lease.”
Pruett notes that many of his firm’s exist-
ing assets or acquisition targets are regional
hubs, distribution centers, corporate head-
quarters or large call centers that are not
located in coastal core markets. “They’re in
the middle of the country, where there’s
less volatility,” he maintains, adding that
while there are barriers to entry in some of
these locations, “the cost of the workforce
that a lot of these corporations assemble in
those markets is very hard to replicate else-
where, which makes these buildings have
high renewal probabilities.”
The likelihood of the market overheat-
ing is slim, says Tom Williams, co-founder
and managing partner of Paragon Real
Estate LLC of Oak Brook, IL. That’s espe-
cially true, he notes, because there’s been
very little new net lease development or
redevelopment compared to the heady
days of 2005-2007.
Formed in 2009, Paragon specializes in
acquiring, developing and managing retail
and industrial net lease and seniors housing facilities nationwide. The privately held
company is backed by a $200-million net
lease fund, of which $10 million has been
