1. What is a "net-leased property"?
2. Why Don't these companies buy the buildings themselves?
3. What is "investment-grade" credit and why is it important?
4. How do you determine if a location is good?
5. Who should own Investment Grade Net Leased Property and Why?
6. Why should an investor choose Joseph E. Kean Company?

A net-leased property is one for which a tenant agrees to lease a property on terms that require the tenant to pay ALL expenses associated with the operation of the property including taxes, insurance, maintenance and utility charges as “additional rent”. This relieves the owner/landlord of the obligation to pay operating expenses of the property

2. Why don't these companies buy the buildings themselves?

The “net-lease” is a financing option for these companies. Companies that are in a program of rapid expansion do not want to tie up their capital in real estate and thereby limit their ability to expand. Secondly, most of these companies can earn a higher return on their money in the operation of their businesses than the cost of the lease payment for the locations. In this way, they can maximize their profit and their stock values. Lease financing is not reflected as a liability on the company’s balance sheets in the same way as debt. So this further improves the company’s attractiveness to stock analysts and investors.

3. What is "investment-grade" credit and why is it important?

Investment-grade credit (S&P rated AAA to BBB- or Moody’s AAA to Baa3) is essential in assuring a secure income stream and the long-term stability of your investment. It is a guide to the ability of the tenant to honor the lease contract for the full term. It gives us the ability to finance your property without obtaining your personal guaranty for repayment of the loan. In addition to ease of financing, higher ratio loans (loan to value or LTV) are usually available for investment grade properties and the interest rates are usually lower. The liquidity of your investment is also improved by reducing a potential purchaser’s concern about the factors listed above. While the creditworthiness of the tenant is critical in the decision-making process, Joseph E. Kean Company never forgets that this is a real estate investment and as such, the intrinsic value of the underlying property is still the key to the long-term security of the investment.

4. How do you determine if a location is good?

This is the point at which the investment selection process goes from science to art. In an investment in which a tenant has unequivocally contracted to lease a property for an extended term (15 – 25 years), the immediate value of the tangible property is of secondary importance. We are tasked with the responsibility of attempting to forecast the likelihood of stable, and preferably appreciating, property values. A very important step is to invest in metropolitan areas with high growth potential. In these markets almost every well-located property will benefit from the general growth trend. Then, it is important to do a demographic study to determine the economic climate in the immediate vicinity of the property. If the area is, and is projected to continue, adding population with a growing average household income at a rate equal to, or above, the national average; if there is sufficient population density; if sufficient employment exists; and there is sufficient pedestrian or vehicular traffic, the area can justify an on-site inspection. The on-site inspection is vital in confirming or refuting the opinion of the location that the due-diligence work has generated. This process requires a significant investment in time and patience. The major arterial streets must be “driven” to determine the “stage of development” of the general area. Discoveries of facts that conflict with previous indications require deeper investigation and create a series of new questions that must be addressed. Personal interviews with managers of other businesses in the area can reveal many things not apparent from statistics or casual observation alone. No short-cuts can be taken at this stage of the evaluation process.

5. Who should own Investment Grade Net Leased Property and Why?

Investment grade, net leased properties are ideal investment vehicles for people with a need for secure, predictable investment performance without foregoing the potential for capital gains. Compared to “fixed-income” instruments such as corporate or U.S. Treasury bonds, the current income is comparable or superior. However, there are some tax benefits that can improve the “after-tax” current return to surpass bond rates. Additionally, the retirement of indebtedness, or amortization of the financing, provides a secondary- and reliable - benefit. Although one cannot predict future values – especially when the investment horizon can be for 15 to 25 years – property values have historically shown a tendency to increase.

This combination of benefits makes investment grade, net leased properties an excellent choice for people who have clear financial goals because the structure of the investment can be modified to achieve their objectives including, but not limited to, retirement income, funding college educations (or other future events) and even estate planning goals.

If the total investment required exceeds an individual investor’s available cash, it is sometimes possible to purchase partnership interests in these investments. Contact Joseph E. Kean Company to check the availability of these opportunities.

Possibly the best suited group of investors for investment in investment grade, net leased properties are those wishing to divest of an appreciated property but, do not want to lose a large portion of their gain to capital gains taxes. These properties are THE ideal “tax-deferred exchange” vehicle. Property owners who wish to be relieved of the risk of increasing property operating expenses and the burdens of property management can relinquish their current property, or properties, and exchange the equity for a net leased property. By doing this their tax obligation is deferred indefinitely, their management obligations and tenant liabilities are terminated and yet, they have all of the benefits of a secure investment and property ownership. This process, while rigorous, is easily accomplished by professionals familiar with the procedures required under Section 1031 of the Internal Revenue Code.

6. Why should an investor choose Joseph E. Kean Company?

Investors who are serious about controlling their financial destiny should seek the assistance of a professional that not only has the skills and experience to analyze and understand the intricacies of property investment but also, one who will closely identify with them and dedicate himself to the achievement of their objectives. Joseph E. Kean Company has been active in assisting investors to acquire net-leased investments since 1976. We have assisted in the acquisition of a portfolio of net-leased properties for a foreign-owned corporation that covered eight states and managed the oversight of these properties for over twenty years. We have also worked with many individual clients to assist them to invest in net-leased properties and to complete Section 1031 exchange transactions. We invest the time necessary to know our clients so that we have a clear understanding of “why” they invest and “what” the investment is meant to do for them. Only then do we begin the process of selecting the best available properties for them. Joseph E. Kean Company has the experience and depth of understanding required to structure clients’ investments to achieve the desired objectives.