Net Lease CRE Property Investments in DSTs & Other 1031 Exchanges

The popularity of net lease CRE property investments in DSTs and other 1031 exchange vehicles seems to be the hot market ticket for commercial real estate investors. NNN (net lease) properties represent a special class of risk when packaged as a 1031 exchange investment opportunity. The risk comes in the form of the mandatory 10-year holding period that forces the investor to accept a significant amount of exposure to technology risk. This calls for proactive investment loss risk mitigation.  CRE net lease property investment loss severity risk becomes most significant beyond the initial 2-year forecast horizon due to the fact forecasting economic and market conditions beyond this horizon becomes less and less relevant as the forecast period goes further out in time.  The reality is the market will change and this is due to changes in competition due to advances in technology and innovations that competing businesses continually seek to deploy to be more competitive themselves.CRE 1031-exchange net lease transaction due diligence

The technology risk exposure manifests itself in the form of new/additional competition within the 100% trade area of the operating business of the net lease tenant. The retail implosion brought about by the advent of e-commerce all but guarantees the investor to have to suffer thru a series of market disruptions that will in fact create term default risk and maturity default risk. Investors considering opportunities in zero-coupon DST beneficiary investment private placement offerings of equity securities in net lease CRE properties are particularly exposed. This extremely high level of risk exposure is driven by the requirement of the ceiling exit cap rate that is required for them to obtain a 100% return on their capital investment. Typically, we find net lease transactions require an exit cap rate ceiling that is already within the trading range for the asset class, and this is alarming because we are currently living in a historically-low interest rate (and cap rate) environment that is only likely to result in increasing rates over time. The outflow of this condition is the realization the transaction will likely force investors to accept real losses (not just tax losses). “Springing, LLC” back-up plans only give the Trustee the ability to do something, but what that something might entail is beyond the ability of most asset managers to understand. They are generally inclined to get out instead of recognizing that failure breeds opportunity.1031-cre-net-lease-transactions

INVIZEN offers the first and only end-to-end solution for helping combat these problems that focuses on both the underwriting requirements for funding, but also prevention of future losses due to the asset value being impaired by term default risk, maturity default risk and/or technical default risk.

This program is designed to support a variety of CRE asset classes that include multifamily, retail, mixed-use, senior housing, light industrial, distribution, commercial, single-tenant, hospitality and many more.  INVIZEN is constantly updating our the program to cover more and more asset classes and yours is likely to be among those we cover.  INVIZEN supports the project and the participants the entire way with our exclusive suite of business planning services specifically designed to proactively manage execution risk because the budgets, goals and owner requirements are automatically updated and transmitted down to the line employee level through every level of management that includes tasking, productivity measurement and automated reporting.  What does your due diligence program have?


DST & 1031-Exchange Commercial Real Estate Bankruptcy, Foreclosure & Investment Loss Severity Risk Management

Find out more about this proactive, real-time program designed specifically to help prevent investment loss severity risk by talking to an INVIZEN representative today at 832.663.9634.