Triple net lease (NNN) properties represent a desirable asset class for generating steady, hands-off income. Yet, the journey to acquiring prime NNN properties for sale is fraught with challenges for individual investors. These challenges are even more pressing for investors involved in 1031 exchanges, given their 45-day identification time constraint, when searching for the best NNN properties for sale.

The allure of NNN properties is undeniable for those seeking passive real estate investment opportunities. With the promise of passive rental income, and the potential for income-generating real estate, NNN 1031 exchange properties offer a pathway to financial growth with minimal management responsibilities. However, individual investors can face distinct challenges when competing against Delaware Statutory Trust (DST) sponsors in this market. This article delves into the hurdles that individual investors encounter when attempting to secure high-quality NNN properties, which will be juxtaposed with the advantages that DST sponsors enjoy.

Strategies for Identifying Premier NNN Investments

Finding the best NNN properties requires a multifaceted approach, blending diligent research with strategic networking and thorough market analysis. Here are key strategies to guide investors toward high-quality NNN investments:

Limited Industry Connections: Individual investors often lack the robust networks that DST sponsors possess, making it challenging to discover and access the best NNN properties for sale. While sponsors may have insider knowledge and first dibs on high-quality properties, individuals may find themselves limited to publicly listed options, which could be less desirable. When I worked as a commercial real estate broker, it was a known fact around the office that the largest net-leased buyers (REITs, pension managers, DST sponsors, etc.) decided to pursue the best options, leaving brokers and individual investors with the leftovers.
Restricted Access to Specialized Platforms: While DST sponsors typically have subscriptions and relationships with premier commercial real estate platforms, individual investors may not have the same level of access. This disparity can lead to a narrower view of available properties, potentially missing out on prime investment opportunities. One of the DST sponsors we work with relies on these connections, and the information they provide, before moving forward with any purchase.
Market Analysis Expertise: DST sponsors benefit from dedicated teams that perform in-depth market analysis, understanding trends and economic indicators at a granular level. In contrast, individual investors may have to rely on more general market data, which can limit their ability to make informed decisions about high-performing potential investments.
Assessing Tenant Creditworthiness & Store Performance: Evaluating a tenant’s financial stability requires expertise and access to detailed financial data. DST sponsors often have the resources to conduct thorough due diligence, whereas individual investors might find this process daunting and may not always be able to accurately assess risk. Even with large tenants, a lack of sales can lead to lower lease rates or outright vacancy at the end of the lease term. Smart buyers are aware of this and will pay a discounted price upon the future sale of the property, before and after lease renewal. In many recent cases, even the strongest tenants have negotiated lease rates at 30-50% discounts from their previous rate.
Scrutinizing Property Fundamentals: Individual investors may lack the experience or resources to fully evaluate the condition and potential of a property. DST sponsors, on the other hand, have the expertise to assess properties comprehensively, ensuring they invest in assets with the best long-term prospects.
Economies of Scale in Operations: DST sponsors benefit from economies of scale that allow them to negotiate more favorable terms on insurance and even property taxes (in many cases), which are advantages that can significantly reduce operating costs. These savings can be passed on in the form of more competitive lease agreements, making for more satisfied and committed tenants. Individual investors, managing fewer properties, often cannot leverage such savings, potentially facing higher costs, which can impact the overall investment appeal and tenant retention.
Diversification and Management Ease: DSTs offer a way to invest in diversified portfolios of NNN properties that are managed by experienced professionals. Individual investors, managing properties on their own or in smaller portfolios, may struggle to achieve the same level of diversification and professional management, which can increase their exposure to risk.

Conclusion

While single-tenant NNN properties offer a promising investment avenue for passive rental income, individual investors face significant challenges in comparison to the resources and expertise DST sponsors have. From limited access to prime properties and specialized platforms to challenges in conducting thorough market analysis and tenant evaluation, the disparities are notable. For individuals looking to invest in the NNN 1031 exchange market, understanding these challenges is crucial. While direct investment remains a viable option for some, partnering with or investing through a DST can mitigate many of these hurdles, providing access to high-quality investments, professional management, and the diversification necessary to safeguard and grow their real estate portfolios.

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