NNN Properties during severe recessions

[Mughen N.]

Hello BP Community! 

I was curious as to everyone's thoughts on how NNN properties fare during extreme recessions and risks and benefits associated with them during these down markets. I understand the majority of the risk lies within the tenant credit and quality so for the sake of discussion lets assume a AAA credit tenant and to further specify lets use an industry that one would assume would do well during recession eg. Self Storage, quick serve restaurants, dollar discount stores, any others?

How did NNN properties do during the 2008 recession for example?

Looking forward to hearing your thoughts and ideas!

M

[Joel Owens]

National tenants with a very strong balance sheet and corporate guarantees on most of the leases if it's a strip center.

Free standing buildings that are single tenant are cap compressed right now. I like strip centers because with 25% down and an 8 cap COC is good and if you lose one tenant you are still making profit and servicing the debt.

If you have one tenant and they go out unless you paid cash you are spending money each month until a tenant goes in there.

Urban core to strong suburban makes sense. Wouldn't touch weaker suburban to rural areas regardless of yield as they die first when the economy starts shrinking. National tenants will sometimes go into those markets when the economy is strong and expansion happens but will be the first to pull out. Typically they like to put franchisees in the riskier locations so if they go out they do not have to operate a corporate store there. Stronger suburban to urban core the corporate parent companies will generally take those over if a franchisee fails due to mismanagement but location is good.