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While the majority of the commercial real estate industry is taking a big hit, certain opportunities that function well in uncertain environments, notably triple net (NNN) lease investing, has become a powerful value driver in the market when paired with resilient businesses.

As COVID-19 continues to negatively impact the economy, commercial real estate investing in general has been met with increased uncertainty and because of that, reduced investments. While the majority of the commercial real estate industry is taking a big hit, certain opportunities that function well in uncertain environments, notably triple net (NNN) lease investing, has become a powerful value driver in the market when paired with resilient businesses. This is a primary reason why Sentinel has focused on acquiring mission-critical, tech-focused properties through NNN investment strategies. By focusing on passive real estate investments in commercial ventures capable of operating at full capacity in the current environment, Sentinel and its investors are capturing long-term value for the foreseeable future.

Why Invest in a Triple Net Lease?

A net lease is a contractual agreement in which a lessee pays a portion or all of the taxes, insurance fees, and maintenance costs for a property in addition to rent. The tenant is expected to pay for all the costs related to a property. A triple net lease absolves the landlord of the most risk out of any net lease type. This means even maintenance and repair costs must be paid by the tenant along with rent, property taxes, and insurance premiums. Most triple net leases are long-term, lasting for more than 10 years, and generally include concessions for rent increases.

Stability

NNN leases are one of the most secure investment opportunities within commercial real estate, because triple net leased properties can provide stable and regular income each month. The rents can be secured by large corporations or franchises, making them lower risk and more reliable. This is why the tenant is important in evaluating NNN lease investments. Since tenants must commit to long-term leases, the risk of re-releasing is markedly lower compared to other lease types. Lease income can almost be thought of as a replacement for fixed income, with the additional potential upside of the sale of the property.

Passive Real Estate Investing

Sentinel sets itself apart in the real estate investing sector by capitalizing on current market conditions and positioning in the NNN lease space. As a long-term investor, Sentinel has been able to take advantage of short-term volatility to execute strategic NNN investments, focused on receiving exceptional risk-adjusted returns and generating passive real estate investing income from high-quality, recession resistant tenants.

For example, we can analyze Sentinel’s recent NNN lease investment for a Tesla Store & Service Center in the Chicago Metro Area highlights these benefits. The property is 100% occupied by Tesla, the highest valued automaker in the world and a credit rated tenant. This acquisition includes favorable terms for Sentinel with a long-term lease, a triple net lease structure in which Tesla pays all operating expenses, along with no termination, space reduction or purchase options. Investors receive regular income streams from the lease payments plus the upside of the appreciation of the asset.

This investment provides the opportunity to acquire a first-class property with a long-term lease to a strong national tenant. Following a complete renovation of the property in 2019, Tesla executed a ten-year lease that extends through 2029 (with two 5-year renewal options). The lease, which is structured with significant rental increases (9.8%) every 5 years, includes a Corporate Guarantee from Tesla, Inc.

With decades of experience in commercial real estate investing across multiple asset types and classes, Sentinel’s principals view such NNN lease investments as offering strong diversification opportunities decoupled from traditional equity and fixed income markets.

Contact our team if you are an accredited investor interested in learning more about investing in commercial real estate.

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Sentinel Net Lease is a privately-owned real estate investment firm that acquires and manages commercial real estate properties across the nation. Our philosophy marries institutional-quality, data-driven investment analysis with exceptional boots-on-the-ground operational experience and meticulous asset management to deliver strong, risk-adjusted returns. We currently own 15 assets totaling over 1.5 million square feet with assets under management in excess of $240MM.

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