Atlanta, GA (July 26, 2017) –By Andrew Ackerman, Managing Director, Sands Investment Group: Much has been said about the impact of the baby boomer generation on the economy. Born between 1946 and 1964, the baby boomers began turning 65 in 2011. They are now increasing the older edges of the population. By 2029, when all of the baby boomers will be 65 years and over, more than 20 percent of the total U.S. population will be over the age of 65.
For this group, commercial real estate, particularly multifamily, has been a lucrative investment vehicle for wealth creation. As this generation begins to plan and move into retirement they are reallocating their capital from assets that require management to assets that are management free. They are also moving from wealth creating assets to wealth preservation. For this reason, the influx in 1031 exchanges will dominate the net leased market now and for some time because of the significant impact of retiring baby boomers.
Consider the hands-on apartment owner who is dealing with late night calls, leasing and maintenance. If the next generation is willing, the real estate can be passed on. However if that is not the case, then the exit strategy is to sell without creating a significant tax consequence. The immense number of baby boomers who are entering retirement desire an exit strategy. This generation has understood the value of real estate as an asset class so the like exchange from multifamily into another asset through the 1031 exchange is appealing.
Single tenant real estate is a large wealth preservation asset class. Net lease assets provide steady cash flow without management responsibilities. Even national issues such as uncertain economic and political policy will continue to drive investors to more secure assets such as credit tenant net lease.
As interest rates have risen the cap rates in the single tenant net lease have remained at historic lows. With these low cap rates there is an increased interest in single tenant assets such as convenience stores and short term leases where investors can get a greater yield than quick service restaurants or drugstores. A good lease with corporate credit or a strong franchisee with good financials and a certain amount of term left in the lease are highly sought after providing options for baby boomers to reallocate capital.
There is no doubt the baby boomer generation is making an impact. The greatest wealth creation in our nation occurred from 1940 to 2017 and as these owners age, they will be rethinking their assets, and moving their wealth. And that is where the single tenant asset comes in as these sellers continue to drive net lease volume, in every sector.