Medical Office Monetization Miracle

If you read my bio, then you already know that I was a healthcare provider before I decided to jump into the world of commercial real estate. I worked at the Hospital of the University of Pennsylvania (HUP) for more than 6 years as a critical care nurse. 

In an attempt to further my career, I began seeking various healthcare-related employment opportunities, such as advanced practice nursing, hospital management, and even medical school. After tons of research, I realized that none of those options were for me. However, I did notice that the University of Pennsylvania Healthcare System was acquiring and developing more than a dozen healthcare facilities within the tri-state area. For example, recently Penn Medicine began constructing a 17-story, $1.5 billion medical center that contains 500 beds located directly across their current 700-bed flagship hospital.

I also noticed that the hospital next door, Children's Hospital of Philadelphia (CHOP), recently completed phase 1 of a mixed-used research, life science, and medical office development project along the Schuylkill River. CHOP’s brand new Roberts Center for Pediatric Research is a 21-story, $275 million building, comprised of 466,000 square feet of research and office space, and is the first of a 2 million square feet four-tower campus.

As a front-line healthcare provider, I realized there were several large-scale trends that would provide growth within the healthcare real estate industry. So now, I will give you a quick primer as to why healthcare real estate is positioned for exponential growth for years to come.

Demand for Healthcare: According to the US Congressional Budget Office, "national healthcare spending is projected to increase from 16% of the GDP in 2013 to 25% by 2040". 

Delivery of Care: New developments in healthcare technology and healthcare policy is changing the way healthcare systems and physician groups deliver care to patients. Historically, healthcare providers and hospitals have been paid based on the volume of care they provide, but with the Affordable Care Act, this system is rapidly changing. Payment incentives are moving away from a volume basis towards a greater focus on the value of services and health outcomes. In an attempt to increase efficiency and decrease exposure to reimbursements healthcare providers are treating more of their clientele in outpatient facilities rather than in hospitals. According to the American Hospital Association, "outpatient surgeries have increased more than 30% over the past two decades". 

Demographic shift: The U.S. senior citizen population is steadily getting older and living longer.  As a result, there is increasing demand for real estate required to house and care for our aging population. According to the U.S. Census Bureau, "the seniors' population will more than double between 2015 and 2060". Furthermore, new supply of healthcare real estate is not keeping pace with expected demand. This phenomenon is known as the "Silver Tsunami", although the term may be a little dramatic, it projects the notion that there are many opportunities for healthcare-focused real estate developers, brokers, REITs and institutional investors.

Durable Asset Class: While many real estate sectors are impacted by macroeconomic events healthcare real estate is a need-based property type, which is typically insulated from economic drivers. GlobeSt.com did a recent interview with Evan Kovac of HFF's Healthcare Capital Markets Group and he stated "Investors see medical office properties as a stable asset class with long-term durability. Medical properties were very resilient through the downturn, have longer-term leases, substantial improvement build out, retention rates of 80-90%, and stable income growth and occupancy". 

Property Transformation: Many hospitals in major metropolitan areas were built decades ago and their current functionality is obsolescent. In order to address today’s medical landscape, health systems are renovating existing hospitals to provide a patient-centric healthcare experience. For example, gone are the days where two patients have to share a room. Now, patients have large single-bedrooms loaded with technology, and are considered more accommodating for family visitation. In addition to constructing and renovating hospital buildings, healthcare systems are developing on or off-campus outpatient facilities. For example, ambulatory and urgent care centers are popping up in storefronts where now-defunct retailers used to be, like Blockbuster Video or Borders Books. These examples are considered the"retail-ization" of healthcare real estate. 

So far, I've shared my background and gave you a quick primer on the tailwinds within the healthcare real estate industry. Now, let's examine the largest healthcare system real estate monetization in US history.

Overview: As reported by Healthcare Real Estate Insights (HREI):10 year, 92% leased (NNN), 52-building medical office portfolio. Purchase Price totaled $725 million ($225 psf), which includes an expected 24-month capital expenditures initiative priced at $32.9 million along with a portfolio sticker price of $692 million. According to Real Capital Analytics Inc, "this transaction marks the largest health system monetization of MOBs, and spans over 3.2 million square feet in 10 states."  Approval from the Vatican was necessary due to the Roman Catholic Church's sponsorship of the health system. 

Broker: Denver-based CBRE Healthcare Capital Markets Group (HCMG) is a part of the largest real estate service firm in the world, and specializes in providing healthcare real estate providers, developers, and investors with the acquisition, disposition, and debt & equity recapitalization strategies. According to CBRE's HCMG, "the portfolio consisted of thirteen medical office buildings (MOBs), four inpatient rehabilitation facilities (IRFs), and one multi-use campus with a surgery center and rehabilitation facility. In addition, the Portfolio includes nine multi-tenant properties with an opportunity for additional lease-up, as well as ten single-tenant properties with long-term leases providing more stability. These properties were in 10 different states that included Texas, Florida, North Carolina, South Carolina, New York, Pennsylvania, Ohio, Wisconsin, Missouri, and Kentucky. Virtually all major healthcare specialties are represented in the Portfolio."

Financial Advisor: Manhattan-based Hammond Hanlon Camp (H2C) is a leader in providing advisory services relative to monetizing, developing, and financing over $2 billion worth of healthcare real estate assets throughout the US, annually. According to H2C, the financial advisor, "CHI is one of the largest health systems in the country. In 2015, CHI generated approximately $15.2 billion in total operating revenues and had total assets of approximately $23.0 billion, and carries an investment-grade credit rating of A3/A-/ A+ by Moody’s, Standard & Poor’s and Fitch Ratings, respectively". 

Seller: Colorado-based Catholic Health Initiatives (CHI) is the nation's third-largest nonprofit, faith-based health system. Typically, a healthcare system completes what's known as a sale-leaseback transaction because the cost to maintain their real estate assets is quite extensive. Furthermore, the capital infusion from sales proceeds is seen as a godsend for healthcare systems in desperate need of monetary funding. For CHI, the due diligence period took about five months of preparation before the portfolio came to market. An extensive examination of 65 non-core assets, which includes ambulatory care centers, administrative buildings, outpatient clinics, and excludes acute-care facilities. Several assumptions were tested asset by asset while structuring the portfolio.

Investor Selection Process: Twenty potential investors qualified to participate in the bidding process.  Investors were given 30 days to underwrite the portfolio, and 4 investors made the short list. Typically, price is the key factor in negotiations for a seller, but there are many qualitative variables that come into play when considering a buyer for a sale-leaseback healthcare real estate transaction of this magnitude.

Buyer: Milwaukee-based Physicians Realty Trust (NYSE: DOC)  is a healthcare real estate investment trust that acquires, owns and manages healthcare properties. Although, DOC was not the highest bidder, they were able to established a relationship with CHI in order to be selected as the buyer. 

Last week at the 2017 BOMA Conference in Denver, DOC provided their Portfolio Assessment:

• 8 operating subsidiaries

• 6.2% unlevered cash yield on purchase price prior to committed CapEx

• Contractual in place Cash NOI of $42.5 million

• 100% of buildings are on-campus or affiliated with a healthcare system

• 10 year NNN leases with 2.5% annual rent bumps

• No debt was encumbered on the portfolio

• Over night equity raise of $500 million

In conclusion, the age-old adage for real estate is "location, location, location", well in healthcare due to the operational risk associated with the property type the new adage is "operations, relations, and then location". As a result, this is more than just an investment where institutional investors insert their capital and wait to see what IRR poops out of the other end. This is comparable to marriage (with a 10-year prenuptial clause) as both the operational healthcare provider and the capital investor become one.  As an individual that has taken a deep interest in the healthcare real estate industry. I hope and pray that this particular transaction encourages other healthcare systems and institutional investors to seek similar matrimony. Hopefully, I will be in a position to catch the garter belt at the next ceremony.

A Diamond in the Rough

Among the four main property types that are considered to be traditional real estate investments for institutional investors, Industrial and Logistic (I & L) properties have lived a shadowy existence. However, the industrial real estate market has been attracting high volumes of institutional capital across the world.  This can be attributed to the superior risk-adjusted returns being generated from this particular property type due to the proliferation of e-commerce, global trade, and a shift in demographic trends towards urbanization.

There are three kinds of industrial properties: bulk distribution, which acts as a national distribution center and measures between 500,000 to 1 million+ sq. ft. Followed by R&D facilities, which tends to be flex office space that contains one or more large storage/manufacturing components. Last but not least, there are smaller multi-tenant warehouses, also known as a “high-flow-through” or "in-fill" facilities, which are the last link in the logistics chain for many businesses. Another nickname for this property type is the “last mile”, and I consider it be one of the best investment opportunities to date due to its high demand, low supply, and mission-critical characteristics. Last mile properties experience low to no vacancy in the "Top Metros", which for investors means there is room for rental growth.

Unlike its more glamorous property brethren (hotels, office, and retail) industrial and logistic properties have a positive correlation to technological advancement. For example, the hotel industry is battling airbnb's popularity and progression, and office properties have been forced to go on the Atkins diet, thanks to the cloud and a change in workforce culture. Also major retailers like Kmart, Sears, and Best Buy's brick and mortar stores are dying a slow death as the technological grim reaper disrupts their business model and profitability.  In comparison, industrial properties benefit from advancement in technology an many industries like big pharma, supermarket chains, manufacturers, and home-builders are experiencing an increase in demand from online purchases as well as efficiency in their supply process due to automation. The industrial real estate market benefits because all of these industries require well-located warehouses as a part of their growing supply chain. 

The old adage for real estate is “location, location, location”, and nowhere is that truer than in logistical and industrial real estate fundamentals. Other key terms that can be attributed to the success of I&L real estate are urbanization and globalization. Investors have taken note of this and are implementing a “gateway city strategy”, which encourages investments in well-located properties for their positive cash flow, liquidity, and good returns.

The year 2017 has been deemed as“the year of uncertainty”, and as a result foreign investors have also joined the "industrial property party" ("you down with IPP, yeah you know me!") as they look for capital preservation. From a macroeconomic standpoint, the oil industry has taken a major hit due to advancements in alternative forms of energy. 

As a result, sovereign wealth funds from oil producing countries have been searching for a way to diversify their investments. Also, in times of uncertainity, many investors tend to prefer hard assets like real estate or gold. This translates into a positive cause and effect scenario for the commercial real estate industry. From a property level standpoint, industrial real estate will benefit tremendously. For example, buying stable long-term I&L properties in a prime metro like Northern New Jersey at a 6% cap rate is an attractive investment opportunity compared to a prime office property at a 4% cap rate, especially in this mature phase of the current real estate cycle. According to PEREnews.com, "value-add players, the best investment strategy has been obtaining mission critical, yet short-leased buildings with multiple tenants only to re-position the asset by restructuring leasing terms at expiration. Opportunistic players that have the right tenant relationships have been constructing pre-leased industrial real estate developments outside of large metropolitan cities like Chicago, LA, New York, Atlanta, and Dallas just to name a few".

I’ve recently become infatuated with industrial and logistic properties due to several factors. In my first career, I was a healthcare provider, and I've noticed that I&L real estate and healthcare properties have similar characteristics. For example, they both have long lease rental contracts, stable inflation-linked rents, favorable triple-net lease structures (NNN), and relatively low tenant replacement costs. However, I&L properties have the competitive edge because they are considered a strong play on globalization, and as a result have the potential of surpassing other real estate assets as a top performer.

Last year, I went to Mexico City for an international real estate study tour with a group of graduate students from NYU. Latin America is known for its fabulous hotels, high end retail stores, and condominiums for expats, yet the main theme I took away from my trip was that industrial properties are the life blood of the Mexican economy. Earlier this year, I went on the same trip, but this time I chose to go to London. We visited several private equity firms in the UK, and one of our best experiences was our meeting with the "real estate mafia", also known to the general public as Blackstone. I was surprised to hear a similar mantra as one of Blackstone’s managing directors gave us a presentation on how they entered the industrial market several years ago, and are currently trying to sell their Logicor business for $11 billion. 

Lastly, I am originally from the great state of Pennsylvania, also referred to as “Inland Empire East", which is home to some of the biggest players within the industrial real estate market. For instance, the largest real estate investment management firm, Exeter Property Group, specializes in industrial real estate. Another major player in the real estate industry is Liberty Property Trust (ticker: LPT) the largest REIT in Pa, recently sold off the majority of their suburban office properties, and is currently over-weighting their portfolio in industrial real estate. Finally, the top brokerage team in Philadelphia is the CBRE National Partners Group co-founded by Mr. Michael Hines, who has been recently donned as Vice Chairman of CBRE Institutional Properties Group.

Top 10 Reasons you should love Logistics & Industrial Real Estate

1)     Specialty property type with a bright future

2)     Highly fragmented market

3)     Concentrated occupier market

4)     Relatively stable income-drivers

5)     Strong tailwinds

6)     Global market w/ common occupiers & operators

7)     Not as many REITs dedicated to this market due to a lack of scalability in the past

8)     E-commerce evolution...think Amazon & Alibaba

9)     Under invested property type in serious need of an technological update

10)  The most down to earth people of any property type work in industrial real estate 

In conclusion, one of the best comments I've read about logistic and industrial properties came from my favorite real estate publications, PEREnews.com, where a portfolio manager was quoted saying “the industrial market behaves more like infrastructure rather than real estate because the volume of goods tend to be consistent in terms of trade from warehouses. If you are in a growth cycle people will buy expensive stuff and during a recessionary times people will buy cheaper stuff”. In translation, I&L properties are not just warehouses, they are access points to domestic consumption through e-commerce, which provides superior risk-adjusted returns in comparison to other real estate investments. So next time you drive past a warehouse, manufacturing plant, or storage facility don’t think of these buildings as an eye sore, instead gaze at them with appreciation. Long gone are the times where we have to wait 7 to 8 business days for an important package or stand in long lines at the store to purchase frivolous merchandise. Matter of fact, as you drive past these structures whisper the words “thank you” because at the end of the day industrial and logistic properties are saving everybody precious time and money with every purchase made online. Can I get an Amen?....Amen!

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Captain Diversity

Over the past two years, the state of race relations in the US has been a hot-button-topic for many Americans young and old. In 2015, the Black Lives Matter movement helped bring to the forefront discussions about police interactions within minority communities. Everything from the stop-and-frisk campaign to the highly controversial shootings of unarmed black men were both in questioning. In 2016, Trump’s highly controversial presidential campaign provided a platform for racism, misogyny, xenophobia, and protectionism.

So it’s no surprise that reporters at The Real Deal decided to write a lengthy article titled “Real Estate’s Diversity Problem” in their January 2017 issue (https://therealdeal.com/issues_articles/real-estate-diversity-problem/). The article begins by comparing the commercial real estate industry in New York City lack of minority representation for client facing roles to LA's film industry, due to its dearth of minority nominees that procreated the #OscarsSoWhite protest.

When I decided to pursue a career in commercial real estate, I noticed that there was a stark contrast between residential and the commercial employment base. In my opinion, residential real estate has been open to diversity because there are a lot more qualitative factors involved as people tend to buy or sell with brokers that they share similar interest, religions, or childhood experiences. Whereas in the commercial real estate space there's more quantitative factors involved. The measurement of one's ability to close all have to be vetted before an individual is given the reigns to sell, buy and or finance commercial properties. Yet, this club may not have much involvement with the minority community and it reflects in their hiring practices. However, many pension funds have a large representation from the minority community. 

According to The Real Deal, commercial real estate tends to be a “rough-and-tumble world, where the industry can seem tone-deaf at best and impenetrable at worst”. They also mentioned that a rookie residential broker can start out by placing a few of his/her clients into rentals, whereas commercial deals take a lot more time to put together and there is a huge luck factor that comes into play.

In comparison to other prominent and financially rewarding career paths like medicine, law, and finance, commercial real estate has yet to implement diversity recruitment programs within their hiring practices. Studies have shown that the implementation of diversity programs help recruit and retain a companies diverse employment base. For example, The National Football League implemented the “Rooney Rule”, which is a policy that requires teams to interview minority candidates for head coaching and executive roles. Yet, within the institutional real estate world where capital flow from international investors is at its highest peak, diversity hiring remains on the back-burner.

Before transitioning into the commercial real estate industry my biggest fear wasn’t being a minority it was starting a career within an industry that is behind on the diversity trend and lacks a track record of successful minorities. Prior to my endeavor, I researched high and low for successful minority investment sales broker and only found one by the name of Mr. Michael Blunt. As a result, I believe there are several reason why talented minorities do not gravitate towards a career in commercial real estate: lack of mentorship, severe lack of success stories, and the commission structure. As highlighted in the article, “the commission-based structure in brokerage is an explanation for why the commercial industry fails to develop a pipeline of talented minorities and women, and while women have forged a path to prominent roles in the industry, the same has not been true for minority men”.

In a recent study entitled The Commercial Real Estate Diversity Report, some alarming data was compiled to further illustrate the vast diversity gap in the CRE industry.

The study estimated that a hiring pool of college educated individuals b/t the ages of 25 - 64 years old consist of:

•    White women: 39.5%

•    White men: 36.7%

•    Black, Asian or Hispanic: 23.8% 

Among CRE Senior Executives (13,773 jobs)

•    White men: 77.6%

•    White women: 14.1%

Minorities

•    Hispanic men: 2.9%

•    Asian men: 1.6% 

•    Black males: 1.3% 

•    Each minority female category: hold less than 1%

Among CRE Mid Level Managers (47,844 jobs)

•    White men: 68.9%

•    White women: 16.8%

Minorities

•    Hispanic men: 4.7%

•    Black males: 2%

•    Hispanic Women: 1.9%

•    Asian men: 1.8%

•    Black Women 1.7%

•    Asian Women: 1.1%

CRE Professionals (61,073 jobs)

•    White men: 58.5%

•    White women: 21.6%

Minorities

•    Asian men: 4.4%

•    Hispanic men: 4.2%

•    Asian Women: 3.4%

•    Black males: 2.4%

•    Hispanic Women: 2.0%

•    Black Women 2.0%

Look, It’s no secret that the commercial real estate industry has an issue with diversity, especially when it comes to minority males and females. I am no MLK or Mr. X, but c'mon CRE get with the program. Many other industries have already recognized the need and benefits in hiring a diverse team and are making proactive strides to address this issue. As a novice blogger, I am personally committed to championing diversity. I will now don my cape and become the “Diversity Super Hero” I was destined to be! By the power of Greyskull, I promise to use my power of persuasion to expose underrepresented individuals across all genders and ethnicities to the commercial real estate industry, as well as encourage various institutions to implement new diversity-focused hiring practices. Up, Up, and Away!!!

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First steps in a crowded house pt. 2

I am a graduate student who has decided that institutional real estate is one of the most attractive financial sectors right now and, as such, have chosen to forge a career in it. 

The reasons behind my ambition to make something of myself in the sector are multi-faceted.

Starting with the big picture, it is clear from where I sit that commercial property has been one of the beneficiaries of monetary policy intervention. Central banks reviving economies via quantitative easing started with the Great Recession and little has changed on that front since. In today's context, it means the world's largest investors, such as pension and sovereign wealth funds searching for yield to meet their liabilities and targeted returns, must turn to assets like real estate for a solution, That bodes well for the future employment of those able to help them meet their needs.

Secondly, given these uncertain times, when global markets are rocked repeatedly by things like extreme geopolitical changes and terrorism, I can see how an investor will continue to take refuge in perceived safer assets versus those perceived to be more volatile. Great Britain's exit from the European Union and China's wobbling economy are among the ongoing events that will see the continuation of negative or lower interest rates for longer than many people previously imagined. The global capital seeking a home in the US, as a result, is another reason why a career in its institutional real estate market is attractive for someone like me living in the US. Some believe the institutional real estate market may be a little frothy right now and that yields may be squeezed further, but I think real estate fundamentals remain strong, particularly given inflation remains low and the labor market has tightened. In the US, there have been improvements in almost every property sector in terms of occupancy and rents, and subsequently values.

Even if current yields are pricing some investors out of gateway cities, and of mainstream assets, certain secondary locations will benefit from current institutional demand, as well as so-called non-traditional property types like self-storage, student housing and single-family residential. I also believe that two of the strongest non-traditional property types are healthcare and life science facilities, as well as industrial and logistic properties. Their decorrelation with the more vanilla property types offers investors defensive strategies to augment against volatility within their portfolios.

I believe there are three routes one can take if they are seeking employment within the institutional real estate industry. First, each and every commercial bank and investment bank has a department that is dedicated to financing real estate transactions at both the property and corporate level. These financial institutions also have small teams that acquire institutional-grade properties. Secondly, each and almost every consulting firm has a team dedicated to auditing and or advising on commercial real estate transactions. Thirdly, many of the big insurance companies have been investing in real estate for decades on both the equity and debt side. Last but not least, commercial real estate brokerage firms (CBRE, JLL, C&W, Colliers) are companies that focus on all aspects involving commercial real estate.

What do I believe such employees will need from me at this point in the market cycle? Impeccable time management, professional integrity, and stellar work ethic. Other characteristics that are beneficial are data analytic skills and hyper-competitiveness. These two characteristics are very important at a time like today where there seems to be more capital than opportunity.

Several mentors have emphasized throughout my studies that, at the end of the day, technical skills help you obtain a job, but your people skills will determine your level of success. I recently met a portfolio manager from CalSTRS (California State Teachers Retirement System), who said: "there are a lot of last-generation real estate investors that are going to retire over the next 5-10years, and there may not be enough talent to replace them". He also stated that there are many opportunities for intelligent, motivate, ambitious, and ethical young professionals".

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Nothing but Net

Triple net leased properties, also known as NNN real assets, are defined by their lease agreement. The tenant is responsible for paying all operating expenses associated with the property outside of utilities and mortgage payments. NNN properties are considered to be a stable, low-maintenance, income-producing, bond-like investment that also retains the growth and tax advantages of real estate.

Triple net lease properties are also referred to as "mailbox money", as such NNN lease brokers are the only commercial real estate professionals that can probably make a rap song out of their property type and reach the number one spot on the billboard charts. "I got that mailbox money, I said I got that mailbox money, say what, I got that mailbox money" I digress, triple leased properties are particularly popular amongst the high-profile single tenant corporations. NNN assets are often used in 1031 exchanges for their tax benefits.

Triple Net Tutorial

First, let us review a few uncomplicated lease structures. Most readers are familiar with a gross lease, which are all-inclusive and standard in residential housing. Gross leases consist of a predetermined rental fee, and all expenses are usually paid by the landlord. In a single net (N) lease, the tenant pays a pro-rata share of the building's property taxes. A double net (NN) lease requires the tenant to cover a pro-rata share of the building's taxes and insurance, and a triple net (NNN) lease requires the tenant to cover property taxes, repairs & maintenance, and building insurance. Typically, NNN leases are most often used for freestanding commercial buildings, which are occupied by single tenants from various industries.  These businesses boast big names tenants from high-profile chains such as Olive Garden, Dominos, Chick-fil-a, Sheetz, Jiffy Lube, 7-eleven, and one of my personal favorites...WAWA!

Capital Markets

For the most part, these types of businesses provide people with basic retail consumption needs ie fast food, gas, and groceries, which is considered by investors to be a recession-proof property type. From an investors perspective, a NNN leased property should reflect the tenant's ability to meet all terms over the tenure of their lease. This is shown in the cap rate as the higher the credit risk equates to a higher the cap rate. According to the Real Asset Adviser, "due to low yields from traditional bond funds, many institutional investors are turning to other types of alternative investments such as triple-lease funds for bond-like security and added yields." 

Acquisition Due Diligence

Investors diversify across geographies, tenant credit quality, asset classes, lease durations, and industries in order to provide safety and a continuation of income. Investors evaluate base rent and expenses, as well as historical sales to determine potential future income. Investors view net lease properties as defensive, thanks to their long-term leases that generate stable and predictable cash flow. 

Advantages & Disadvantages

It's obvious that NNN leases tend to be more landlord-friendly. So you're probably wondering why a tenant would sign a triple net lease agreement. Typically, businesses would rather lease their real estate as opposed to owning it, and leases are between 10 and 20 years with annual rent increases. Hence, keeping the actual property off their balance sheet. The Real Asset Advisor quote the CEO of VEREIT, Mr. Glenn Rufrano, saying "we are in the business of providing capital to Corporate America by providing long-term housing for their businesses". The benefit for the landlord is not having to foot the bill for tenants wasteful utility consumption or extreme usage of rentable square footage that typically leads to costly damages. The risk for the tenant involves a loss of control over increasing expenses and budgets for repairs that can hinder cash flow that could otherwise be used for investment in operations, marketing, or human capital. The risk for the landlord is that a tenant can go bankrupt and the property could go dark (vacant), which would disrupt what was once a predictable income stream.  

Conclusion

Triple net lease properties performed well in 2017. Many companies enjoyed a boost in revenues over the holiday season and the development pipeline for new supply has been subdued post GFC. Interest rates are expected to rise over the next few quarters and this may make it difficult for institutional and private investors to explain their purchase price as cap rates have compressed to all-time lows. This has led to a flight to quality as foreign investors have their eyes set on NNN assets as a way to diversify their real estate holdings.

In my opinion, the future is bright for NNN lease properties, unlike mammoth malls in the middle of nowhere, triple net properties serve their communities by providing necessities that only take a few minutes to an hour to obtain. A few months ago, I wrote about the proliferation of investment in industrial real estate due to a changes in consumer consumption. I believe NNN assets are experiencing a similar trend. As a result, many of the top brokerage firms (CBRE/JLL/HFF) have recently established advisory teams that solely focus on triple-net leased properties as the appetitie for this property type continues to increase.