If you follow economic news, you are undoubtedly familiar with the word inflation by now. The good news is that there’s an investment option staring you right in the face that you can utilize to both survive and thrive during inflationary periods…. The grocery store. Think about it. When was the last time you saw a Publix Super Markets Inc. or a Kroger Co. KR store go out of business?
Grocery stores carry essential items and food staples that every household needs, no matter what impact inflation is having on the economy. Even though the cost of food and just about everything in the grocery store is up, you don’t really have a choice about whether to shop there. Additionally, many grocery stores have leases with rent increase amounts tied to the consumer price index, which means grocery store rents go up with inflation.
The irony here is that as the economy worsens, many grocery stores see increased sales as families pull back on luxuries and get back to basics. This means grocery stores almost always have steady cash flow to pay rent. It also means grocery store-anchored commercial real estate could be a great addition to your investment portfolio.
Why Grocery Stores Are Great Commercial Real Estate Investments
Commercial real estate has historically proven resilient to outside economic factors, such as downturns on Wall Street. A lot of that has to do with the fact that commercial real estate is typically rented for long terms at fixed prices — and often with fixed rent increases. That’s especially true when it comes to grocery stores, most of which are bound to triple net leases.
That means grocery store tenants pay a prorated share of the property owner’s insurance, property taxes and maintenance for the space. This proration is based on the size of the space being rented. Because most grocery stores are large and usually anchor the shopping center where they are located, a triple net lease on a grocery store goes a long way toward making a commercial real estate investment stable and profitable.
That’s not the only benefit. The essential role the grocery store plays in the life of all consumers (they have to go there) makes them great neighbors for other retail outlets. They know being strategically located in a grocery store anchored shopping center exposes them to more consumers.
That’s why many retailers and consumer outlets will gladly pay a rental premium for retail space in grocery store-anchored commercial centers. This offers grocery store anchored real estate investors a great value-add both at lease up and through the life of the investment.
Grocery Store-Anchored Commercial Real Estate Versus The Stock Market
If you want an indication of how much faith investors have in commercial real estate, just look at how many institutional funds own it. They tend to favor commercial real estate because it outperforms other asset classes. Commercial real estate offers them stability, appreciation and passive income. In other words, they get the gains without the volatility that characterizes the stock market.
You could literally be up millions of dollars on Wall Street at 9 a.m. and be in the poorhouse before lunchtime. Commercial real estate functions very differently because commercial lease terms often run for several years or even decades. Regardless of whether the stock market is up or down, investors can generally count on steady income from a grocery store-anchored property.
Grocery Store-Anchored Commercial Real Estate Versus Residential Real Estate
Grocery store-anchored commercial real estate doesn’t just have advantages over stocks. It also outperforms other real estate investments. The long lease terms allow you to phase in your rent increases, while your triple net tenants are also paying your property taxes, insurance and maintenance. Apart from debt service, these are the line items that do the most damage to investor profits.
By contrast, lease terms on most multifamily or even single-family residential portfolios are only 12 months long. All that turnover exposes you to leasing commissions, frequent unit repairs and the headache that goes with having residential tenants. Additionally, there are very few if any triple net residential leases, which means you’ll be paying the property tax, insurance and maintenance costs yourself. Sure, you can write it off, but those expenses still hit your bottom line.
Final Thoughts on Grocery Store Anchored Real Estate
Grocery store-anchored real estate can be profitable for investors, but that’s not by accident. Managing assets like this properly takes a great deal of skill, experience and industry connections. It’s a whole different ball game from living in one unit in a fourplex and managing the other three yourself.
That’s why almost all grocery store-anchored commercial real estate is managed by a team of professionals with a broad depth of industry knowledge. From the investor side, the best way to leverage this experience, and the profit potential of grocery store anchored property is through private equity investments.
Private equity investments allow you to leverage the experience of industry professionals who know how to properly capitalize on the benefits of commercial real estate while minimizing its risks. As an investor, taking advantage of a well managed private equity commercial real estate offering can help you generate passive income while your asset appreciates in value.
Where to Find Grocery Store Anchored Real Estate
If you’d like to find out where you can take advantage of private equity commercial real estate opportunities, you may want to consider First National Realty Partners. This investment firm specializes in the acquisition and syndication of grocery store-anchored commercial real estate investments all over the country.
The company has almost $1 billion in assets under management and a historical average annual investor return of 23.14%. This steady passive income from appreciating assets has been a great benefit to First National’s 1,500+ investors. Leases are all triple net and most offerings meet or exceed investor expectations.
Image: Courtesy of First National Realty Partners
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