Negative Bond Offerings are topping $12T (Trillion); Inflation rates under close review; Historically low Interest rates; Historically low Cap rates for CRE valuations; Access to debt; and Crush of Global equity seeking risk-adjusted returns……….we believe that US-based commercial real estate will be the safe haven investment.
Recent highly-regarded investment sources, are advising extra caution, these range from Financial Times’ Gillian Tett to Janus Funds’ Bill Gross, formerly PIMCO Bond market leader; and messages from Chase Private Client and Wells Fargo Wealth Investors to their valued client bases.
It is now being suggested, cautiously, by a number of very credible sources, that 10 Year US Treasuries, as an investor reference point, currently at 1.58 as of 10:50 AM, today, 16 August, that the rate may rise a ‘mere’ 125 bps, over the next decade; not, the next few quarters of 2016-17, as previously anticipated with possible FED rate hikes. FED Rates in the 3.0% range have been an historical reference point for a risk-averse returns with the 10 Year T Bill, as an investment vehicle. While this may still be competitive in a negative Bond rate environment, it is not “business as usual”. A stunning global trend; this is no longer a Black Swan.
Do Net Lease Commercial Assets provide an alternative investment solution in a lower yield environment?
There are a number of related issues that have contributed to what we thought might be a short term, post Great Recession Aftermath of lower rates/ lower yield environment, but, now we are forced to consider that a revised view, that this is ” A New Normal” for US investors and their advisors and for Global investors alike.
One of the ingredients of the Witch’s Brew which fed the investment environment from 2003-2008 that led up to the Financial Crisis, was the financial engineering of Wall Street that produced investment vehicles chasing higher yields that resulted from FED Policies of the early part of the last decade under Greenspan.
Also in the ingredient mix has been the continuing role of central banks around the world struggling with their historical concerns to tame and manage inflation; and how to balance monetary and fiscal policies like never before. What about the growing impact of Inflation, not a big issue in recent years; but an concern on the investor horizon, nonetheless.
Identifying and managing risk has always been a challenge; often ‘diversification was viewed as an important consideration. But what is the proper weighting of a diversified portfolio?
What are the practical, risk-averse options for investors?
Are there any safe haven investments in the face of currency issues; rule of law in many jurisdictions; what is a risk-adjusted return in a low yield environment anyway?
In this lower yield environment with slower anticipated economic growth, it has been a profound challenge to achieve acceptable levels of cash flow for many investment portfolios.
Do NNN Assets serve as unique solution as a Bond diversification or even a Bond Replacement candidate, a Fixed-income alternative? We think, “Yes”, but not all net leases are alike.
We have ‘ Supply and Demand’ factors to consider. Immediately after the crisis, we had limited supply of investment products in which risk-averse investors could have confidence; and an unprecedented flood of Equity Capital in the hunt for risk-adjusted returns on a global scale.
In an environment in which negative Bond offerings have gone from a few Swiss bonds; and then Japanese bonds to more than $12Trillion, yes with “a T” and counting, the search for stable, predictable, safe haven fixed income streams is a real conundrum. Not just any real estate investment can meet this objective in the risk-averse manner of net leased assets.
But, “Not all net leases are the alike”, particularly, in terms of insulating an investor from contingent liabilities of some lease structures. Important to note. That’s how we add value.
While a portfolio of Bonds have been a more traditional source of such predictable, modest returns, but no longer. Inflation, Core or otherwise, while not exceeding 2% on paper, in the US; still looms large as you review the Bond portion of your investment portfolios.
In our Net Lease Advisory, we have stated for over the last decade, that these absolute triple net assets, with existing credit worthy tenants, are a worthy investment vehicles to consider. The source of the predictable cash flow, is a credit worthy tenant in a solid commercial location. The management and operating responsibilities are, solely, a Tenant responsibility, that can afford investors a hard asset solution, as an inflation hedge with additional tax benefits of ownership.
We regret to acknowledge that many real estate marketers, brokers and sellers, alike, will characterize a property offering as NNN, (“except for roof and structure). An important clarification for an investor who wants a passive, no nonsense investment which mitigates any risks, going forward and no hidden expenses that might undermine the cash flow that was the basis for your investment goals in the first place.
If we are facing the new reality of lower yield environment for risk-adjusted investments over the next decade as a reference point; then, we need to begin to recalibrate our yield expectations; and consider allocating a portion of your lower risk capital to securing NNN properties is a new strategy worthy of review as a asset class that can be a vehicle to meet your investment objectives, short term and long term with value accretion.
To that end, we have invested in both information technology and human capital over the last decade to create and maintain a Proprietary Net Lease 72,000 property database, which many consider the most comprehensive in the net lease niche, to afford our Clients maximum exposure to on and off market assets.Based solely on Client investment objectives, we can efficiently, sort the “NNN wheat from the NNN chaff” to determine what NN asset may meet your Client-specific objectives and risk profile.
We have completed in excess of One Billion Dollars of these deals by matching the stated objectives in bull and bear markets to accomplish Client objectives throughout the country.Low interest rates; low (even negative) bond rates are looming inflation, all suggest that these NNN assets can provide a modest; but safer, low volatility investment in times like these to allow accretion when inflation hits over this next period of time. www.nnnadvisory.com