October 12, 2021

JF2597: Single-Tenant Net Lease Opportunities with Randy Blankstein

Randy Blankstein decided to take advantage of the high demand for industrial, single-tenant net lease opportunities at the young age of 26. Now, 30 years later, he’s been continually active in this niche. Today, Randy is sharing his fundamental criteria for properties, common misconceptions of triple net leases, and what specific type of real estate to buy for best returns. 


Randy Blankstein Real Estate Background:

  • Senior commercial real estate executive with over 30 years of experience focused on advisory services in the single-tenant net lease sector
  • Owner of commercial real estate investment brokerage firm
  • JV equity partner in one retail property, one flex property, and 12 industrial properties
  • Based in Wilmette, IL
  • Say hi to him at: https://www.bouldergroup.com/


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Deal Maker Mentoring

Deal Maker Mentoring


Joe Fairless: Best Ever listeners, how are you doing? Welcome to the Best Real Estate Investing Advice Ever Show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever. We don’t get into any of the fluffy stuff. With us today, Randy Blankstein.

How are you doing, Randy?

Randy Blankstein: Good. How are you? Thanks for having me.

Joe Fairless: I am well, and it’s my pleasure. Looking forward to our conversation because I imagine we’ll be talking about single-tenant net lease opportunities and your experience with that, because Randy is a senior commercial real estate mentor executive with over 30 years of experience, focused on advisory services in the single-tenant net lease sector. He’s also the owner of commercial real estate brokerage firm. He’s a JV, equity partner in one retail property, one flex property and 12 industrial properties. He’s based right outside of Chicago, Illinois.

So with that being said, Randy, first, do you want to give the Best Ever listeners a little bit more about your background and your current focus, and then we’ll go from there?

Randy Blankstein: Sure. So I graduated from college, went to work on the tenant rep side of a firm; it’s been acquired twice, which is now JLL. I did that for about six years in downtown Chicago. And one of my clients at the time was AT&T, and AT&T had a lot of single-tenant industrial buildings, which is basically the garage where the service vehicles go at the end of the day, the service trucks… And we kind of started a sale-leaseback program and a development program. And the lease was so big of people who wanted to buy this type of asset, that it really amazed me that there was so much demand and very little supply. I kind of thought this was a business or a niche, so at the naive age of 26, I thought I should start my own company and take advantage of this niche. And kind of one thing led to another and I’ve kind of stayed in this single-tenant net leased lane of properties, from AT&T to Dollar General to Walmart, Walgreens, etc. And it’s been a niche I’ve been in various sides of and active in for about 30 years.

Joe Fairless: So what is your business? Are you investing? Are you representing buyers and sellers? Is it all the above? Can you tell us about that?

Randy Blankstein: Sure. Yeah, the Boulder Group is an investment sales firm that I founded, which obviously helps clients in acquisitions and dispositions of these types of assets.

Joe Fairless: Got it. Okay. Do you work with clients locally and nationwide, or just locally?

Randy Blankstein: It’s mostly a nationwide business. 68% of single-tenant properties are bought in states where the investor is not living at the time. They’re fairly passive; you buy a Dollar General, for instance, and it’s a triple net lease with a 15-year lease, with a triple net. Really, there’s nothing to do for those 15 years, other than collect a check once a month. It’s a very passive form of investing, for the most part.

Joe Fairless: I’d love to learn more about this, because I personally don’t have much exposure to it. You just said “for the most part.” What are some exceptions where there’s nothing to do other than to collect a check?

Randy Blankstein: Well, those are the triple net ones. There’s certain single-tenant properties which are double net, where it requires roof and structure. That’s a landlord’s responsibility, so you still have some maintenance obligation in those. And there’s some like GSA-type properties, like VA clinics, Social Security offices, etc, where it’d be much more active, and they reimburse you, but you have to be active in the management of your property. And again, at the end of 15 years or whatever, at least, you have to work on the renewal probability of the tenant, and if they don’t renew, obviously, it’s still real estate at the end of the day; you’re back [unintelligible [00:03:50].26] finding another tenant and leasing out the space and finding your next user. Like I said, ideally, it’s very passive, which is, you sign a long-term lease to Walmart, or Lowe’s, or Home Depot, they keep renewing forever, and you really don’t have to do anything on an active basis. But again, sometimes that doesn’t work out, and you do have to get back involved in the property.

Joe Fairless: So I heard what you said earlier, investment sales firm, acquisitions, dispositions… Do you help with the leasing also?

Randy Blankstein: We don’t. We’re not involved in the leasing aspect of it. Typically, these things are first-generation, which means it’s a built to suit by a developer. And then the renewal probability is pretty high, in the 85% to 90%. So typically, there’s a renewal event, and in the odd case it does not, obviously, it gets leased out to somebody else. But again, we’re an investment firm, not a leasing firm, so we don’t get involved in the leasing aspect of it.

Joe Fairless: Fair enough. But I’m sure that you address that question with your clients who are looking to buy, because I imagine that’s the elephant in the room. “Well, this is great, but what happens if they leave…?”

Randy Blankstein: Yes, which is why, again, the majority of the people who own this type of assets are older, heading towards retirement; they’ve owned more active management buildings, they’ve owned multifamily… They’ve sold those, especially in a market like this where they’ve had a lot of cap rate compression, and they’re looking to put their portfolio on a hold, looking for steady income stream, and looking for cash flow as they head toward retirement.

Typically, I view real estate as kind of the stock and the bond market, which is the stock side and the speculative side is vacant land, leasing risk and other things that nature. Net lease is more of a bond side, because you’re just collecting checks on an ongoing basis; a lot less exciting, a lot lower risk, but conservative and good for older or more conservative investors.

Joe Fairless: What are the advantages of investing in triple net, versus, say, a bond, for example?

Randy Blankstein: Well, one is a lot of people invest in it through 1031 exchanges, which is a tax-advantageous law that allows you to sell one property and buy another without paying the capital gains tax. So again, there’s big advantages to buying that versus a bond if you sell another piece of real estate, because you don’t pay the taxes. So that’s a huge advantage, and that’s definitely a decent-sized part of the market.

Also, unlike a bond, some of these things have escalations or CPI or others in them, which is a little different than a bond, which is a fixed income stream. And again, it is real estate at the end of the day; there’s benefits from depreciation to appreciation, if the real estate values go up at the end of the term. So both of those things give it a better investment than bonds… And I would argue lower risk, because you actually have something at the end of the day. There’s a default, you actually have a piece of real estate, some kind of principal protection value, whereas a bond, if you bought a speculative bond and junk bond and some company that doesn’t exist anymore, there is no downside protection.

Joe Fairless: Let’s think back – I know it was 30 years ago-ish – when you started, around 26 or so… What you would advise a client who you are representing on the purchase then, versus what you advise or how you would advise the client on a purchase now? What are a couple things that you would do differently now, or say differently now? And I’m not talking about market-related things, I’m talking about just experience; you’ve seen some things over three decades… What are some of those items that you tell that client now, that you wouldn’t know of when you started?

Randy Blankstein: Look – usually, people focus on the deal, which means the tenant, and are obsessed with the lease term, and the tenant and their initial cap rate, and what it looks like on an Excel sheet. When you’ve been around for a longer time, you realize that tenants, even large ones—and 30 years ago, large ones meant Sears and Kmart – business models change and tenants come in and out of favor… And at the end of the day, what you’re buying is a piece of real estate. So the 10 or 15 basis points or other things that you go for reaching for yield really don’t pay off over time.

Again, some people think a 12 year Walmart is a 12 year Walmart. And it is to some extent, but should Walmart ever leave, there’s vast differences in the land and residual play of location versus the other, and you may not get compensated for it day one.

So again, when I was younger and less experienced, everyone’s looking for higher yield. And when you’re younger, you chase higher yields, but there’s a reason that they’re higher. And you know, real estate fundamentals are so important. Even if you didn’t know that Kmart and Sears were going to have trouble ahead, this is a dynamic market where two years ago people didn’t understand essential tenants and non-essential tenants, they didn’t understand the value of drive-throughs, business models have changed, soft goods have smaller footprints… There’s just so many changes that occur over time. People are moving out of malls into freestanding buildings… So many changes take place, which you just can’t predict or don’t know in advance, that the only protection you have at the end of the day is a solid piece of real estate that has good fundamentals, good traffic counts, hard corner intersection; all of those things really come back to play, because regardless of the initial retirement, regardless of the financing you’ve got, and how great the tenant is and how well they do at that location, ultimately, you want to feel more and more comfortable over time that your residual real estate value is equal to what you have in the property. And people spend way too much time, and I did as well, focused on the transaction, “Oh, I need a 20-year lease”, “I need this specific tenant”, “I need this yield. I need something that will give me CTL financing”, which is Credit Tenant Lease financing, which was a big deal back when I started, and isn’t such a big deal now.

People spend so much time focused on cash and cash, and other metrics that they forgot that throw all that away, and one day you hear that your tenant went bankrupt or something changed, and you’ve got your piece of real estate back, how would you feel? That’s really the almost relevant question over time.

Joe Fairless: Thank you for that. I’m glad that you talked about that.

Break: [09:35] to [11:35]

Joe Fairless: I want to dig in there a little bit more and learn more about the fundamentals. But just so I’m clear, you’re saying that location and the fundamentals of that location are more important than the tenant or the business or the cash-on-cash return that the deal initially—that comes with it. Is that right?

Randy Blankstein: Yeah. Look, I’m saying everything is different degrees of importance; you shouldn’t ignore the other part either. Get a great location that’s tied up for 40 years with super low rent and low cap rate. But ultimately, the people who’ve done the best in this market have had optionality, which is when things didn’t go their way, they still had strong real estate to fall back on, and they did well because of that. And some people who couldn’t predict things 20-30 years ago, would buy [unintelligible [00:12:22].26] McDonald’s a client of mine bought in a hard corner in Miami, which he has been trying to buy them out for the last 10 years, because the piece of dirt is the last piece of an assemblage that a developer wants. And it’s worth dramatically more without McDonald’s and with McDonald’s. And it was the exact opposite when he bought it. So again, good real estate comes back and helps you in the end… Over a long period of time, maybe not in the short term.

Joe Fairless: And I imagine people who are buying triple net lease projects – they’re in it for the long run, they’re not looking to make a quick buck. Otherwise, they’d be as you said, the analogy earlier – they’d be doing development or value-add deals or—

Randy Blankstein: Land speculation is something there.

Joe Fairless: Land speculation. Exactly. So let’s talk about good fundamentals. You said two things that I heard, but I want to make sure we talk about all of them if there are more, which I imagine there are… Traffic count and you said “hard corner.” What is a hard corner?

Joe Fairless: Well, you have roadways on both sides. It’s a real corner, not — kind of a main and main intersection. Sometimes you can have a corner where you have a primary road on one side of the property and kind of a secondary road next to it. Main and main kind of has, you know, equal traffic counts on both sides. The destination, if it’s again, in a trade area, it’s kind of the main intersection of that trade area. That’s why you’ll see gas stations and drugstores predominantly looking for those locations. Because it’s a huge visibility, it’s good access from both sides… Signal lights, obviously, there’s a traffic stop. So much the better. And those locations over time, with visibility, have held up fairly well.

Joe Fairless: Traffic count, hard corner, what you just described… What are the other things that go into being good fundamentals?

Randy Blankstein: One thing I look for is positive demographic growth. For instance, in Chicago, we’re now in a negative demographic growth area. And obviously, it’s hard to overcome that, because obviously, when you have negative demographics, there’s more people leaving than coming, and because of that, rents go down over time, and other uses aren’t as important; it shows an area in decline versus an area that’s thriving.

Joe Fairless: Are you talking about population?

Randy Blankstein: I’m talking about population. Yes.

Joe Fairless: Got it. So positive population—

Randy Blankstein: Growth.

Joe Fairless: —growth. Now, is that for the submarket, for surrounding submarkets, for the MSA?

Randy Blankstein: At the beginning, the whole MSA, but I think you need at least a one, three and five-mile ring of positive population growth.

Joe Fairless: Okay.

Randy Blankstein: Even in some growth areas like Austin or Nashville, Orlando, there’s certain areas that are still not growing nearly as fast as the entire Metro. So it’d be nice if everything was growing to 1, 3, 5 in the metro and the state, but you have to be realistic as to what is achievable.

Joe Fairless: And over what period of time do you want to see that growth?

Randy Blankstein: Most demographic services use five-year estimates, and the country has been growing at a half a percent per year. So if you have 2.5% growth over 5 years, that would be average for the country. So anything above that is you’re growing above the average, and I would say anything below that or negative, you want to really look into why that’s happening.

Joe Fairless: One thing that I’ve seen as a multifamily investor is that the average household income of the area 1, 3, 5 mile radius is a really good indicator of the type of demographic that we’ll get. Now, I know we’re not talking apples to apples here with what you focus on… But is that a component of this?

Randy Blankstein: Well, again, I think it’s what kind of use you currently have, at least, or prospective future use. You look at the demographics, meaning people sometimes want high-end demographics, they want 100,000-plus average or median income. That’s great and all, but if you’re running an auto part store, that’s probably your wrong demographic for people that are actively engaging in auto parts of changing their own vehicles, right? Whereas for an auto parts store, I would want something which is much lower demographic, because they’re probably better consumers of that store, and the store probably does better because of that.

Joe Fairless: But doesn’t that go against what we were talking about earlier, the location is more important than the actual business? Because in that case, the business is auto parts store, but if it’s in a lower demographic, in terms of household income, then it’s not as desirable. Help me understand that.

Randy Blankstein: Well, look, no decision should be one variable only, right? You want, obviously, great real estate, but there’s sacrifices, and then you still want your existing tenant to do well, because even though you like the real estate, you want the existing tenant to stay there and renew multiple times, and your real estate value, theoretically would still be going up. But you won’t have any disruption of cash flow or leasing commissions or downtime if your existing tenant did well, right? So that’s important. And it’s also important that other businesses can do good there, that you have enough traffic and people, that it does well.

Again, high-end is good, and maybe much better for multifamily… But again, you also want density and people who support stores, people who support similar stores; even if it’s similar type stores in the future, that may not be directly the kind of user you have today. Maybe a different user, and you still have support for those stores. So you want strong store sales. And again, it could be just different demographics. But again, you do want to match the demographic today, even though, again, real estate value is important over 30 years, and what’s important in 5-10 or 15 is not unimportant either, that your existing tenant does well, which is the number one thing you want to occur. Again, real estate is important, it becomes more important by the day, but you want a use that works day one.

Joe Fairless: What’s a misconception about triple net?

Randy Blankstein: I think people are just so caught up in cash-on-cash and short-term fundamentals or certain tenants which they think are inevitably great today, which won’t be tomorrow… Like I said, I think McDonald’s and Chick-fil-A are both great business models and they’ve lasted a very long time. That being said, I don’t think there’s value in them buying them then at 3.5 and a 4 cap. They’re both best in class and they’re both long-term tenants and great and all, but at 3.5% to 4%, I just think they’re being richly valued by the market. I don’t think there’s much value there.

Joe Fairless: Mm-hmm. And help me understand though – unless the location meets the fundamentals, that being on a hard corner, good traffic count, population growth… Then would it makes sense?

Randy Blankstein: It depends on your timeframe. I mean, look, if it’s in a portfolio in your family office, and you own 20 properties. Clearly, you should have some higher-end properties like McDonald’s or Chick-fil-A. But if you’re buying one or two properties, just to take that low of a return, even if it has all the great fundamentals, I think you have to look long and hard at historical interest rates and other factors and say, “Am I really being compensated enough for the risk here?” So again, you want to buy quality, but you also want to balance it with current return, to some extent.

Joe Fairless: You were just handed $100 million and your only objective with that is to get the best return on that $100 million, buying triple net leased properties. What do you buy?

Randy Blankstein: So in 2005-2008 I ran a co-investment fund, buying net lease properties. We had a partner who was really the buyer of it, and we were kind of the sourcing arm, because we don’t buy directly for conflict of interest reasons. We only buy with somebody else. And what we bought and what I would still buy today is shorter-term leased office and industrial properties. I think these things, when they’re 1-4 years, don’t have a huge natural buyer set that’s willing to take the risk of rollover for these types of assets. And again, I think it works great in a portfolio, because to buy 20 of these for $5 million each, you understand that some of them are not going to work out and some of them are going to work out great, and the average one are going to work out in between. But on a one-off basis, everyone is very scared of these, because they offer obviously a very high risk, especially for net lease, and it’s either 100% vacant or 100% occupied. So to buy a few of these, it’s tough to diversify your risk enough. But if you buy a huge portfolio of them, you’ve essentially created a multi-tenant situation across industries, locations, product types, etc. I think it’s very low risk as a portfolio, even though it’s very high risk on an individual basis. So I think there’s a ton of value to be added there. But it only works for people that are able to build portfolios, not people that are buying 1-3 properties.

Joe Fairless: Mm-hmm. Thank you for that. It’s awesome. I love that we went through that scenario. What’s the minimum size of a portfolio in that scenario that you think would make sense?

Randy Blankstein: Again, I think it’s probably 15 million. So I think you’d have to have 4.5 million to 5 million of equity to really buy a portfolio of that size. Otherwise, maybe you want to be a little bit more conservative when you buy, and maybe you can invest in a fund, or leave it to other people that have that more diversified portfolio on the higher yield side. But if you had 5 million of equity, you could build it yourself.

Joe Fairless: If our listener has 5 million equity, could you help them find that type of portfolio?

Randy Blankstein: That’s what we do. And again, it doesn’t exist; you’d have to buy it kind of one-off—

Joe Fairless: Yeah, yeah, yeah. Right.

Randy Blankstein: —[Inaudible [21:32] but yeah, that’s kind of what we do in general.

Joe Fairless: What have we not talked about, that you think we should, before we wrap up?

Randy Blankstein: Look, there is some concern… Again, I talked about this previously – a large share of this market is done via 1031 exchanges. And why it gets brought up frequently on a bi-yearly basis as far as a tax break that they’re looking to phase out – it’s a little bit more serious this time, with The Build Back Better plan, and Biden and his platform vowed to limit to $400,000 the amount of exemption allowed for this 1031 exchanges. So while it wasn’t in the houses’ tax revenue sources a few weeks ago that came out, until this plan is done, both how much are they going to spend in revenue sources for it, there’s certainly [unintelligible [00:22:15].06] gets, not eliminated, but modified and reduced. Obviously, the tax advantages of coming to these properties is great, 1031 exchange is a great vehicle, for those who don’t use it… But it’s not without legislative risk, especially this year. So I’ll feel a lot better about six months from now hopefully, when the current spending and current revenue sources are identified and planned moving forward. But it’s definitely a risk factor today.

Joe Fairless: I ask all my guests this – based on your experience, what is your best real estate investing advice ever?

Randy Blankstein: Buy when every single lender is scared.

Joe Fairless: So during the Coronavirus pandemic, right when it started?

Randy Blankstein: So during the second quarter of last year during Corona was a great time to invest, because lenders were shutting out [unintelligible [00:22:56].17] During 2007 and 2008 was a great time to invest. And 1999 and 2000, everyone was so focused on internet and high yield things that the real estate market was ignored. So there was a great opportunity there. And even when I was in college, in 1989, my summer job – I was an analyst at Equity Office Properties, which was one of Sam Zell’s REITs at the time, and they were buying distressed assets and accumulating them.

So again, real estate is very much a cyclical business, and you should be buying at a time when you can barely sleep at night into the real estate market, because valuations have been amazing over time. Again, everyone can’t wait all the time for the five or 10 years that it took some time to take to find that cycle, but you should back up the truck on the day it shows up.

Randy Blankstein: Yeah, even you said shorter-term lease office properties. I mean, come on. The masses are not buying lease office properties right now, so you could take that advice right now and buy office properties.

Joe Fairless: Very much so. Office is clearly out of [unintelligible [00:23:56].17] an interesting time to do that for sure. The consensus I’ve always found is usually exaggerate your problem [unintelligible [00:24:05].17] There definitely will be some office issues to work through as far as remote work, etc. but it’s probably not as bad as the worst-case scenario which people are pricing in today.

Joe Fairless: We’re going to do a lightning round real quick. Are you ready for the Best Ever lightning round?

Randy Blankstein: Let’s go.

Joe Fairless: Alright. First, a quick word from our Best Ever partners.

Break: [24:23] to [26:18]

Joe Fairless: What’s the best ever transaction that you’ve done?

Randy Blankstein: For best at this moment, I’m going to say biggest. We did a $130,000,000 three-property Cargill, cold storage properties. Cargill is the largest private company in the US, for those who don’t know it. We did it, and because it was in Canada, somebody was able to buy it at a 12 cap. This was like 15 years ago; they resold it recently at a six cap. So it’s probably the most compression I’ve ever seen on a net lease property, and it just worked out great for them… And so that’s probably the—my client has had the most success.

Joe Fairless: What’s the best ever way you like to give back to the community?

Randy Blankstein: Usually, helping younger people who are getting into the business, mentor and asking questions, being a resource and a guide for them. That’s where I think I can add some value.

Joe Fairless: How can the listeners get in touch with you?

Randy Blankstein: LinkedIn is probably the best thing. Just go to LinkedIn, type Randy Blankstein. I’ll respond fairly quickly.

Joe Fairless: Randy, it was a pleasure talking to you, learning from you, hearing the thought process that you have when you think about triple net leases, pros, the cons, and the opportunity right now. I appreciate you being the show, I hope you have a best ever day and talk to you again soon.

Randy Blankstein: Great show. Thanks for having me.

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