Sponsored Content Retail Leasing

Commitment: The Cornerstone of Net Lease

One of the most appealing aspects of net lease is its focus on the long term. Since net leases are traditionally longer, investors can rely on stable continuous income, and tenants can count on predictable leasing costs.



One of the most appealing aspects of net lease is its focus on the long term. Since net leases are traditionally longer, investors can rely on stable continuous income, and tenants can count on predictable leasing costs.

But building for the long term takes careful planning, a deep understanding of your tenants, access to relevant data, and most importantly, a willingness to cultivate and maintain strong working relationships that will go the distance.

Net lease transactions have increased significantly over the last 20 years (see chart on opposite page), and the sector has also grown significantly wider and deeper, as more operators realize that monetizing their owned real estate through sale-leasebacks can provide a prudent form of capital. By reinvesting sale-leaseback proceeds back into their business, operators can increase their return on invested capital, helping them grow in the future. 

Moreover, the free-standing nature of the asset provides flexibility, which became essential for many businesses during COVID-19. As Jackson Hsieh, CEO of Spirit Realty, noted on a spring earnings call: 

“Because [net lease] properties are free-standing, single-tenant, and fully controlled by the operator, tenants can adjust their operations and quickly adapt their space to take advantage of changing circumstances and consumer demand. COVID was the ultimate stress test to the net-lease model and showcased its durability.”

A Formula for Success

Spirit Realty invests in single-tenant assets with long-term triple-net leases. We have a portfolio of more than 1,800 properties with more than 300 tenants, representing approximately $7 billion in real estate investment across 48 states and 28 industries. Our portfolio is well diversified, with approximately 75 percent of our rents coming from retail properties and the rest from industrial and other asset classes.

In order to build for the long term, our underwriting platform focuses on real estate quality, industry relevance, and tenant credits. We use our proprietary tools to analyze acquisitions and provide us with a deep dive on any asset that we're considering acquiring.

When looking for investments in the triple-net space, we start with the real estate, which is the underlying value of any investment. However, the tenant and the industry also have to work over the long term. When we evaluate tenants, we want to understand their business model, how they're doing in the current environment, and if they've adapted over time to remain relevant in their industry. 


It's also necessary to look at the industry itself to understand its long-term prospects. We've seen that play out over the last twelve months, with industries and tenants that were able to withstand the impacts of COVID-19 and come out on the other side — some stronger than others.

A good example is home décor retailer At Home. At Home has more than 200 stores in 40 states and is headquartered in Dallas where Spirit is also located. There's a fair amount of competition in the home goods space, but in 2019, Spirit dug into At Home's business model and industry, and we liked how their business model was executed. Our underwriting convinced us that At Home's model is best in class, and the real estate is solid, so we committed to deepening our relationship with them. 

We partnered with At Home on their store expansion efforts in 2019 and doubled our exposure to 12 locations. Then, during the summer of 2020, when capital was extremely hard for retailers to obtain and many businesses were shut down due to the pandemic, our relationship with At Home allowed us to do another sale-leaseback.

The home goods sector became more popular as 2020 wore on and people were spending more time at home. Because of At Home's business model, the company was in a superior position to take advantage of consumer demand for decorating upgrades. Coming out of COVID-19, At Home was definitely a clear winner: they produced same-store sales growth of 44 percent, received multiple rating agency credit upgrades, generated great shareholder returns, and are on a clear path to expanding their physical footprint, proving out our underwriting. 


We generally target acquisitions over $10 million, and in the next 12 months, we're particularly focused on the lifestyle sector, including outdoor entertainment, restaurants, gyms, and sporting goods. We noted that people spent more time outdoors during the pandemic, and as life begins to return to normal, they will want to resume activities that they enjoyed before the pandemic. This dynamic will benefit the industry overall, and we're looking for tenants who are positioned to take advantage of that. We also see great promise in auto-related industries, including service and car washes, as well as wholesale clubs and pet services.

Our underwriting spans many different asset classes and industries, and over the last twelve months, about 50 percent of our acquisitions have been industrial. We made the decision to increase our industrial exposure before the pandemic as we like the single-tenant net lease characteristics of the assets and their long-term performance profiles. Our industrial portfolio includes distribution centers, light manufacturing, and food production facilities that are mission-critical for our tenants. 

We approach these properties the same way we do for our retail tenants. Does the industry make sense long term? Does the property make sense for that tenant? For example, if it's a distribution center, does it have the right clear ceiling heights? Is it near the right infrastructure? Can the asset be used for its intended purpose long term?

We can't make our investment decisions without high-quality data, and as a buyer of real estate, we've embraced innovative ways in how we obtain and use data. Our in-house data analytics are based on our proprietary property rankings, an extensive use of research, and a deep credit analysis that helps us identify opportunities that are accretive to our portfolio. 

We believe that you must use data holistically — you can't just hang your hat on one data point. You need to look at the growth trajectories of different industries, the business model, the long-term outlook, and the tenants and how they conduct business. There are lots of different data points to use, so we're always looking for best-in-class data to help us underwrite and critique new opportunities. 

All of these elements create the foundation for our firm's commitment to long-lasting relationships. When we find clients or tenants that we like, we want to be part of their growth story. If you have the conviction that someone's set up for long-term success, you want to be the right partner for them, and that's what we look for — partners we can grow with.

This content was sponsored by Spirit Realty.


PJ Behr, CCIM, joined Spirit Realty in May 2021 and serves as vice president of acquisitions. He is responsible for sourcing, marketing, analyzing, and overseeing the acquisition of new investment real estate opportunities, with a primary focus in the retail, office, and entertainment sectors. Behr has more than 20 years of experience in commercial real estate, with a primary focus on single-tenant investment properties.

To learn more about retail acquisition opportunities at Spirit, contact PJ Behr at (972) 476-1940 or pbehr@spiritrealty.com.

For industrial acquisitions, contact Steve Wolff at (972) 476-1981 or swolff@spiritrealty.com.

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