WSJ reports that single-tenant NNN investments are an example of investors venturing into "obscure" corners of the property marker.
The *Journal* is not a CRE trade publication, but I would not expect that type of hyperbole from them.

They also report on funds raising money to purchase single-tenant properties with an eye towards having the incumbent tenant own the property (rent-to-own).

Edit: To be fair, a property occupied by a tenant that does not have an investment grade credit rating (or corporate guarantee) could be considered "risky."

[https://www.wsj.com/articles/property-investors-target-small-businesses-as-market-heats-up-11648546200](https://www.wsj.com/articles/property-investors-target-small-businesses-as-market-heats-up-11648546200?reflink=desktopwebshare_permalink)

[Alternative link](https://archive.ph/w90XL).
[{"id": "i2u2c7m", "text": "Yes, Walgreens, auto zone, dollar tree, net leased medical office, all very obscure corners of the market /s", "replies": [{"id": "i2v1dod", "text": "In 2007, every single drug store chain built tons of freestanding facilities with 20+ year leases, usually flat, and were all rated low risk investment grade.  How does that market look now? Eh.. Rite Aid is junk bond status now. \n\nA net leased medical office building is an entirely different animal and not what the article is about.  That requires specific location knowledge.  \n\nThe rest, they appeal to simple investors who don't understand the value of real estate is not the same as the value of a lease. Worse, while FIRREA only allows loans on real estate, they still get away with lending on the lease value.", "replies": [{"id": "i2w8gqv", "text": "I mean the value of the leased fee interest in a property is the value of the real estate. Nothing says you can only lend based on fee simple value. \n\nHaving a long-term lease in place to a national credit tenant adds value to a property.", "replies": [{"id": "i2xs0nt", "text": "For you lending your own money, this true.  For a federally regulated lender subject to FIRREA you are dead wrong.  Any value from a lease above the fee simple value implicitly means the lease is above market and it is an intangible value separate from the real estate value.  This is the law.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "i2x71ht", "text": "Industrial- so obscure right now", "replies": [], "depth": 2}, {"id": "i2y4vzw", "text": "I have observed many amateurs with money getting involved with NNN, wheas in decades past sponsors would have some semblance of CRE operating experience.", "replies": [], "depth": 2}], "depth": 1}, {"id": "i2u3kvn", "text": "Seems like the article is specifically talking about the small business side of things and not Single tenant nnn in general?", "replies": [], "depth": 1}, {"id": "i2v0pxq", "text": "The problem is technically, FIRREA does not allow lending on intangibles.  If your value of a single tenant NNN property is much higher than the value is if it were rented at market, the value of the above market rent is an intangible value and unrelated to the real estate.  \n\nAll of that said, bankers are stupid, and the appraisers they rely upon don't even understand the concept of intangible value, despite the very concept being in the Appraisal Institute's Appraisal of Real Estate 15th Edition and in the beginning of every REIT offering plan.  \n\nI just killed a deal at a major regional bank because the appraiser made just this same mistake. Property owner buys the waterfront site (in a flood zone in NYC - complex building requirements) for $6.9MM 5 months ago. Leases it to lets say a bus company that while kind of famous in NYC is not a credit tenant.  $9.5MM of environmental remediation and construction of impervious parking (i.e. if it floods, it doesn't flood the parking lot) is required, and the lease is contingent on completion within a certain timeframe (effectively now, which is why I got the assignment).  Couldn't make sense of the summarized lease or his Argus model.  No forecasting of increases in real estate taxes (based on a city specific income approach with a loaded cap rate and tax rate).   Concludes to an \"as is\" land value without the lease of $9MM and an \"as is\" leased fee value of $18,000,000.  The stabilized value is $33,000,000. \n\nThe original bank (a small one, there are many in NYC) realized they fucked up and tried selling it.  \n\nBut do you really have to be a real estate expert to know that simply having a piece of paper doesn't double the value of environmentally contaminated land directly on the water?\n\nNow, the WSJ article isn't dealing with banking regulations per se, but even if this was a cash purchase, the buyer would be taking a huge risk.  The site had been marketed for 4 years and vacant for decades.  Tenant goes out of business and he's stuck with what is effectively  vacant land that no one has wanted to buy in 4-30 years. \n\nThe $9,000,000 difference is an intangible value that has an entirely different risk profile.  It has to be valued separately and not conflated with the real estate value.  \n\nI see this all the time, so I tend to think it is a big deal. \n\nOnly multifamily can really be properly analyzed within a vacuum.  And that's only because we have housing shortages pretty much everywhere.  Every other real estate asset requires some understanding of the supply/demand/risk factors of the tenants, prospect tenants/users, and often the business (agriculture, forestry, natural resources).", "replies": [], "depth": 1}]