Perry Abbonizio is President and Chief Executive Officer of New Field Ventures, a global equity firm headquartered in the NY tri-state area.
Mr. Abbonizio pursues a value add oriented investment approach and seeks strong standing companies that offer significant upside and value add potential with a margin of safety at the time of purchase. Mr. Abbonizio has been profiled in numerous financial publications such as Businessbib as a serial entrepreneur and mentor covering topics like financial planning, investment strategy, real estate underwriting, and wealth management, his 40 years of experience developing integrated solutions for investors and partners in various types of offerings and real estate. Perry is considered a visionary and self-starter with intellectual awareness and passion for current industry trends.
Increasingly, investors are seeking out more and more NNN lease properties. The NNN lease, or triple net lease, seems to offer a number of advantages to investors who want to “set it and forget it” while still having a passive income stream that helps build their financial portfolios. NNN leases are viewed as hands-off investments, with little effort on the part of the landlord. Not only that, investors tend to think that there is little to no risk associated with the investment, making it the ideal solution for many investors.
Unfortunately, while the risk remains low in NNN investment scenarios, there are still several things to take into consideration. No one knows what interest rates will look like in just a few short years. Not only that, there are no guarantees when it comes to any type of investment. Carefully considering a number of key factors can make it easier to determine whether a triple net lease is worth the investment—and help you set up a lease focused on your needs.
What happens if interest rates increase?
If interest rates increase substantially, it can make the entire market tumble downward. As leases start expiring and the cost of debt to finance changes, the number of deals available on the market will rise. As a result, it can shake up the market substantially—and change the way your renters view your property and your ability to make the money you need to cover both the mortgage and your operations in the future.
Are you prepared for a vacancy?
The risk associated with the vacancy is very real, especially in a highly volatile market. Even major brands are getting hit with bankruptcies, leading to significant vacancies in many commercial properties. You may lose tenants even in the middle of a lease as the company becomes unable to support itself or suffers other challenges. The costs and risk of that vacancy can be crippling, especially in the early years of the acquisition when there’s a mortgage due every month. As you do your due diligence before planning a NNN lease investment, it’s important to discuss the risk of vacancy and put a strategy in place that will allow your investment to survive even that possibility.
Did you do your due diligence on the location?
NNN leases are all about location. Over the last 10 years, retail has struggled even in the strongest demographics. Even the best landlords have struggled with vacancies and other challenges. It’s been necessary for retail establishments to reinvent the retail experience to compete with eCommerce and big box stores. Brick and mortar simply isn’t what it used to be, and even big box stores that are stuck in the ways of yesteryear are closing one after the next. As a result, it is more important than ever for landlords to carefully examine the location before making a purchase. Is it convenient? Will your renters be able to bring in the attention and foot traffic they need to encourage sales? With a prime location, you can increase your odds of success and better protect your investment. An out-of-the-way location or a shopping center that’s fast going downhill, on the other hand, can quickly see your investment crumbling away beneath you.
Are you prepared for a shakeup?
Even the best markets can undergo substantial challenges. Consider the NYC rent-controlled multifamily market. Not long ago, it was unanimously considered the most secure market, with the best hedge against inflation. Recently, however, updated rent laws limited landlords’ ROI to fee those units to market rent and pass down rent increase to capital repairs in the business, which in turn transformed the way landlords could handle rent. As a result, it has become more challenging for landlords in NYC to gain the income they once expected. Are you prepared for those types of shakeups? Diversifying your investments, for example, can help set you up for success even if things don’t go as you had originally planned.
Choosing the right investment is an ongoing challenge. Vision, patience, and due diligence, however, will always win! Avoid buying into the mass hype that states, “This is the only way to go!” “This is the best investment for you!” Instead, do your own research and make sure you fully understand the investment method you’re choosing and how they have the potential to impact your finances down the road. By better understanding the risks associated with your investments, you can prepare and set yourself up for higher odds of financial success.