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While private equity giants buy portfolios of warehouses and entire housing developments to rent out, a new breed of real estate investor is putting money into buildings leased to gas stations, doctors’ offices, and neighborhood grocery stores, The Wall Street Journal found.
Since mid-2020, a growing number of investment funds have been buying properties occupied by single tenants, the WSJ said.
New York City landlord Withco, which signs lease-to-own agreements with small businesses, recently assembled a $30-million investor fund that drew money from Canaan Partners, Founders Fund, and individuals including athlete Venus Williams and actor Will Smith.
Its recent acquisitions include buildings leased by a medical massage spa in Pennsylvania, a Mexican restaurant in New Mexico, and a grocery store in Tampa.
Withco believes that offering small businesses a chance to own their places of business will attract backing from socially conscious investment funds.
With prices climbing for more conventional real estate investments and interest rates on the rise, these investors see more room for growth in odd corners of the real estate world, including cold-storage depots and short-term rental houses.
Conventional real estate trusts avoid properties used by small businesses because those enterprises are more likely to fail and stop paying rent, the WSJ said.
Keyway, another trust, minimizes that risk by specializing in medical office properties, which have held tenants through the last two years more consistently than spaces taken by clothing stores, gyms, or restaurants, CEO Matias Recchia told the WSJ.
Keyway already has put about $50 million into such properties and plans to invest another $200 million.
The company minimizes the risk of vacancies by getting to know a single industry and doing due diligence to determine how likely a tenant is to remain in business, Recchia explained.
In general, single properties with small tenants are no more risky than large ones, he says.
“Starbucks or Dunkin’ Donuts also close locations,” he pointed out. “There is risk associated with any investment in real estate.”
TREND FORECAST: Big and small, far and wide, the trend for private equity groups and buyout firms to buy up the world continues unabated. And, when the world sinks into Dragflation, buying out the smalls—along with the Bigs buying up the residential housing and the “Bigs Getting Bigger”—will slow down a bit… but continue unabated.