Net Lease Sales Jump 37% As Investors Seek Stability And Scale

Investors were already flirting with net lease properties in the first half of the year, drawn by the lure of stable returns despite uncertainty fueled by a global trade war. The July 4 passage of the Trump administration’s signature budget package has made a relationship even more attractive.

Net lease assets pulled in billions of dollars in investment before the One Big Beautiful Bill Act became law, but activity has been supercharged in recent weeks by investment giants like BlackRock and Starwood Property Trust diving in to the tune of $10B.

Transactions, including the rollup of other massive firms, are expected to accelerate in the back half of the year. 

“We needed the tax package to be passed, and then we expected folks would develop a thesis and move forward,” said Camille Renshaw, the CEO of B+E, a brokerage and marketplace focused on net-leased assets and 1031 exchanges. “And it has been frenetic, pretty much since the day after the tax package passed.” 

Investors spent $46.7B in the 12 months ending in June on net-leased assets, up 37% year-over-year, according to data from CBRE and MSCI. The defensive sector is drawing capital from buyers looking for a harbor safe from the impacts of tariffs or a potential economic downturn. 

“I expect it to stay that way, which is really interesting in the summer. It's not usually that way in the summer,” she said.

BlackRock and Starwood’s deals only add fuel to the fire as investors retreat from risk. In commercial real estate investing, the assets are seen as one of the closest things to a sure bet. 

The deal structure — under which tenants are typically locked into a long-term lease and responsible for all or most of the property expenses — creates what is supposed to be steady cash flow in the form of stabilized rents from tenants with strong track records and sterling credit. 

In contrast to typical real estate investment, in which the upside often comes in the form of tenant rollover and rent escalations, net lease investors are effectively buying into the success of the occupier’s underlying business over the long term.

“You're really focused on locking in your cash flow for that period of time,” said Jim Vallos, the head of direct real estate at Harbor Group International, an investment firm with $20B in assets under management. “There may be some noise in how you value the residual, but I think folks largely treat these like bonds. They’re really looking at the lease term.”

Net lease deal structures work across asset types. Retail brands will sell off the real estate they occupy to help fund new locations while office and industrial occupiers sell their real estate to unlock capital for any number of applications.

Norfolk, Virginia-based HGI has grown its net lease portfolio through sale-leasebacks in the office sector. Its portfolio includes several single-tenant office buildings across the U.S. leased to high-profile firms, Vallos said.  

“They’ve performed very well over what has been a really tumultuous time in the industry,” he said. “Over the past five years of Covid, interest rates and everything else that's gone on, these have been really solid performers for us.”

Partnerships with tenants also provide opportunities for business development, like bankrolling a retail expansion by purchasing the new location’s physical property or entering into a sale-leaseback with an industrial user that gives it the capital to open another logistics facility. 

“A lot of these groups call the tenants their customer, and they have a desk that's really just assigned for that. They're going through every one of them and finding out where's growth,” Renshaw said.

“How do we build more for you?” is a common refrain for major net lease buyers, she said. 

BlackRock reached a deal to acquire ElmTree Funds through a stock trade at the start of the month, giving the investment giant control over a $7.3B portfolio of 122 mostly industrial, single-tenant assets in 31 states. 

A few weeks later, Starwood Property Trust announced a $2.2B deal to buy Fundamental Income from Brookfield Asset Management. The deal will add 12M SF worth of net-leased properties spanning 44 states to the portfolio of the Miami Beach-based investment firm. 

The substantial size of the net lease operators acquired by Starwood and BlackRock was likely a selling point, Renshaw said. Investment funds are sitting on massive piles of cash they raised for an expected postpandemic wave of distressed transactions that has yet to come to fruition at scale, despite growing loan delinquencies.

“I don't think that the two deals themselves are surprising, because it is hard to do a high volume of transactions right now,” Renshaw said.

After sitting on their hands for the last 18 months, money managers are looking for ways to make up for lost time. 

“The way to really do it is to go buy a whole fund,” she said. 

Capitalization rates on net lease assets expanded for the better part of three years, but rising demand has put downward pressure on spreads. 

Net lease assets averaged a 6.97% cap rate in the second quarter. That was a 259-basis-point difference on the yield of 10-year Treasury bonds, a decline from the 267-point spread seen in the first quarter. 

“Everyone I'm talking to is saying it's shifting right now,” Renshaw said. “It's very much been a buyer's market for the last year or so. At every turn where we thought it was about to change, mortgage rates would increase or we'd have tariffs again or something else happened. It does now feel like there really is momentum.”

The passage of President Donald Trump’s tax and policy package has injected a modicum of predictability into what has been a roller coaster of tariff policies, executive orders and trade proclamations.

Corporate decision-makers can more comfortably forecast future costs now that they are armed with the updated tax code. That is expected to boost transaction volumes even as the debate around interest rates rages on, with Trump and his allies as key agitators.

Multilocation businesses like quick-service restaurants, banks and pharmacies have for years used another part of the tax code called 1031 exchanges to help fund expansions. That deduction lets businesses avoid the capital gains taxes on a property sale if the proceeds are reinvested into another property. 

The new budget bill includes a key provision that makes 1031 exchanges an even more attractive option for growing businesses that Renshaw believes will fuel a bump in transaction volume.

The budget expands and makes permanent a tax break known as 100% bonus depreciation, which allows businesses to deduct the full cost of qualifying equipment purchases from their taxes in a single year rather than over time. The  change will save businesses some $51.5B in taxes in 2025 alone, according to the nonprofit Tax Foundation, which supported the provision. 

“As you switch between assets, the write-offs you get from just normal depreciation are really attractive,” Renshaw said. “Some of the things we're seeing right now in terms of bonus depreciation just puts it on steroids.”