Net Leases & Proper Due Diligence

BENA Capital announced its first single tenant retail site acquisition last month and branched out from residential multifamily investments into net lease properties. The term “net lease” is defined as a contractual agreement where a lessee pays a portion or all of the property taxes, insurance, and maintenance costs, in addition to rent. As real estate markets and trends evolve and cycles become apparent, BENA Capital continually monitors key indicators in target markets across the US to identify opportunities for investment. While there are some notable differences between multifamily rentals and net lease investments, what does not change is the rigor behind the due diligence we perform prior to an acquisition. Here are just a few of the things we look for —

Tenant Quality - The quality of the tenant is extremely important. We look at business performance, balance sheet, and liquidity - not just at the local level, but how the parent company is doing. Another example of a key indicator is the credit rating of the business, which is a quantified assessment of the creditworthiness of the tenant with respect to financial obligations. Although even the most profitable company is not a guarantee for future success, the credit rating can be a reliable way to gauge the company’s health and is one of many criteria we take under consideration.

Solid Unit Level Economics - Understanding the unit level economics can be a good predictor of how likely the tenant will renew their lease when their term is up. We look at historic revenue, profits, payment history, strength of local demographics, projected supply/demand, and compare performance to other competitors in the neighboring vicinity.

Favorable Lease Terms - Lease terms for net leases are typically 5-30 years. And longer isn’t necessarily better. A 5 year lease with a company that has good unit level economics can be more desirable than one with a longer lease. Take, for example, a 20 year lease tenant with built-in rent increases of 1% annually - while the investor is protected in slow growth or declining markets, if the market’s rent growth is higher than what has been contracted to in the lease terms, you are losing out on that growth. Other terms we review in detail in concert with lease term include the types and frequency of rent increases, property improvements, and the overall condition of the property.

Corporate Backing - Where regional franchises are part of a larger national network, we look for leases where the national parent corporation backs the rent payments on the local lease. Since asset value is directly tied to the income that is produced by the tenant, a rent payment guarantee from a national corporation offers more stability and predictability that rent is paid on time and obligations will be met.

When executed well, with a defined strategy in place, net leases can produce a steady stream of income for investors.

BENA Capital Announces Single Tenant Retail Acquisition in New York

BENA Capital is pleased to announce the Premier Fund’s first acquisition of a 9,014 sq ft stand-alone single tenant retail site tenanted with Dollar General located in Hornell, NY. The property was built in 2005 specifically for Dollar General, which has been a tenant continuously since construction. Dollar General renewed their lease for an additional 5-year term expiring June 2025, with three subsequent 5-year options, showing a strong commitment to the site.

Since Dollar General is an essential business, it has done well during the COVID-19 pandemic and continues to be one of the few retailers to remain open for people to buy groceries and daily supplies during these trying times. Dollar General Corp has announced that they will pay front-line employees to get the COVID-19 vaccine, making it one of the first U.S. companies to incentivize its workers to get immunized.

Dollar General is one of the most sought after tenants for retail sites such as this. It is publicly traded (NYSE: DG), is a growing business, and provides a corporate guarantee to its lease. It just crossed 17,000 stores in operation in November 2020,and in 2019, DG opened 975 new stores, remodeled 1,024 stores and relocated 100 stores. Its business is also strong with same store sales increasing 3.9% and net sales increasing 8.3% to $27.8 billion. Operating profit increased 8.8% to $2.3 billion, net income grew to $1.7 billion, and diluted earnings per share increased 11.2% to $6.64. Cash flows from operations were $2.2 billion, and DG returned $1.5 billion to shareholders through share repurchases and dividends.

Three-quarters of U.S. residents now live within five miles of a Dollar General store. DG also shows strength in weak economic environments, providing downside risk protection during recessions. As such, BENA Capital is excited for this first acquisition for the fund in providing reliable cash flows and long-term price appreciation.

Contact Us now to be placed on the waiting list and to receive BENA Capital Insights.

BENA Capital Premier Fund - Fully Funded with Waitlist

BENA Capital is pleased to announce that the Premier Fund is now fully funded until the next capital call. The waitlist is currently open - please visit The Premier Fund page to learn more about our offering.

The Premier Fund has been formed for the purpose of investing in core-plus and value‐added commercial real estate properties, located throughout the United States. The Fund targets investment in assets that generate cash flows, where value-add opportunities play a role, and where the Fund’s ability to underwrite opportunities and close swiftly will produce pricing advantages. The Fund intends to focus on commercial investments, including compelling opportunities in additional real estate spaces such as Office, Retail, Industrial, Student Housing, Multifamily, Storage, Senior Living, etc.

Contact Us now to be placed on the waiting list and to receive BENA Capital Insights.

BENA Capital Launches Premier Fund with Commercial Asset Focus

We are pleased to announce the launch of the BENA Capital Premier Fund - a debt-free fund, targeting stable commercial real estate investments that provide consistent cash flow and capital preservation. 

Premier Fund Highlights:

· Access to Large Commercial Assets

· Stable, Reliable Dividends

· Open-End Fund

· Minimum Investment: $100,000

· Debt Free

The Fund has been formed for the purpose of investing in core-plus and value‐added real estate properties, located throughout the United States. The Fund expects to invest in assets that generate cash flows, where value-add opportunities play a role, and where the Fund’s ability to underwrite opportunities and close swiftly will produce pricing advantages. Although the Fund intends to focus on commercial investments, it may come across compelling opportunities in additional real estate spaces such as Office, Retail, Industrial, Student Housing, Multifamily, Storage, Senior Living, etc.

Learn more and invest in the Premier Fund Offering

National Debt, Politics, and Real Estate Impacts

The US national debt has ballooned nearly 200% since 2008, currently standing at $27 trillion. In April of this year, with the full weight of the pandemic, it reached a record 122% of GDP. Raising taxes and cutting spending are the two most popular solutions for reducing debt, and with Election Day just around the corner, it invites the question of what policies we’ll see put in place over the next four years.

Here are just a few items on our “watch list” that could impact the real estate industry:

1)      Stepped-up Basis – this is the tax provision allowing beneficiaries of property to minimize capital gains taxes. The IRS basically resets the market value of these assets to their value on the date of the original owner's death. There has been a lot of talk about how eliminating step-up in basis would boost tax revenues but increase the burden for top-bracket income earners. So far, the administrative and logistical nightmare that the IRS would have to juggle in terms of auditing, record-keeping, and tracking estate assets has been a deterrent to its reversal.

2)      Long-Term Capital Gains – in the instance of a Democratic win, we’ll likely see an increase in long-term capital gains taxes for those earning more than $1MM/year. Today, sales profits from assets owned for more than a year are taxed at either 15% or 20%, depending on your annual income. Biden has proposed raising the tax to 39.6% for the highest earners.

3)      First-time Home Buyer Credit & Affordable Housing Development – Biden has proposed a $15,000 tax credit for first-time home buyers as well as a $100 billion "Affordable Housing Fund" to expand low-income housing.

Whatever the outcome of the Presidential election, the party controlling Senate will also greatly influence future policy and impact short-term growth forecasts. Overall, markets seem to view “split government” - with one party checking the other - favorably.

BENA Capital Announces Multifamily Acquisition in Dallas-Fort Worth

BENA Capital is pleased to announce its latest acquisition of a multi-family apartment asset in Fort Worth, Texas — in a suburb just outside of the Dallas-Fort Worth (DFW) metroplex.

In the current pandemic environment, the DFW area has outperformed all other Texas Metros, with an average occupancy of 91.2% in July 2020. Overall in DFW, rent collections have remained stable and rent growth is expected to stay positive through the duration of 2020, especially in the case of suburban workforce housing. To date, we have not seen discounted market pricing in Fort Worth. Inventory levels continue to trend downward while demand remains strong. However, with our strong broker network and all-cash position, BENA Capital was able to procure a below-market purchase price and favorable deal terms on a turn-key whisper listing.

Cities like Fort Worth, with its robust growth, are well-positioned to weather economic slumps. We acquired this property fully occupied. Due to its location and stable rental income stream, it has less portfolio risk and the opportunity to benefit from greater price appreciation post-pandemic. It is a strong fit for the BENA Capital Mosaic Fund (Stable Income Fund). We are excited about the prospects of this property and expect the asset to be a healthy contributor to the fund.

The Resiliency of Multifamily Real Estate

Since the start of COVID-19, we have been tracking the resiliency of multifamily real estate. Current housing supply is still low, and paired with a sharp increase in moves to lower-density areas and low-interest rates, investors have continued to invest in multifamily homes.

While real estate demand in cities like New York and San Francisco have seen declines in both the number of transactions and in rental rates, CREXi reports that markets where the population is under 2MM people are growing by 4%+ due to low supply, high demand. We continue to see low vacancy rates for top suburban markets in Texas, for example.

High unemployment across the US and the uncertainty of around COVID infection rates through fall/winter 2020 hold a certain element of risk, but that doesn’t mean there are no opportunities. While performing due diligence on rents, occupancy indicators, and on-time payments during COVID, smart investors are taking notice of markets that are still outperforming national averages. Choosing a property in a well-positioned market with a diverse economy, working with seasoned property managers, and keeping well-informed of government assistance packages, will continue to be the key to maintaining the success of multifamily portfolios during this pandemic.

Multifamilies - New Q2 Trend Report

Downtown Lexington, KY

A new report from Moody’s Analytics REIS ranks the top 5 and bottom 5 markets for multifamily investment. According to the report, national rents fell an average of .4% in Q2 2020. In cities like San Francisco and New York, rents declined more significantly, and vacancies rose as people working remotely moved to the suburbs, seeking more space and lower rents.

#1 on the top 5 multi-family markets list is Lexington, KY. Lexington continues to see rent growth through the pandemic, with 6% rent growth in the last year.

#1 on the bottom 5 multi-family markets list is San Francisco, CA. Multifamily rents fell 3.3% in Q2, the largest quarter over quarter decline since 2001. The city is also at the top of the list for the worst performing rental markets in the country, with an overall rent decline of 2.7%.

Real Estate Strategy - Q&A

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We encourage our investors to reach out anytime between quarterly updates with questions or comments. Earlier this month, we received an email from one of our investors who wanted to pick our brains on the current state of affairs, as an outcome of the COVID-19 pandemic. He asked whether we were adjusting our real estate investment strategy and what actions we were taking to adapt to the new realities, post-COVID. 

This is a great question because no single event in American history has plunged the U.S. economy into a recession faster than the COVID-19 pandemic, and we wanted to leverage this platform to share our thoughts with our broader audience. 

While the number of new unemployment claims has been declining since April, the weekly total is still far above records from previous downturns, and more than 18MM Americans remain unemployed. A recession will inevitably impact real estate markets and investment returns, which is why strategic positioning, nurturing key relationships (between brokers, property managers, and tenants, etc.), and a little bit of patience can make all the difference in terms of emerging from this storm stronger than before.

BENA Capital’s investment strategy is built to ride out economic turbulence and to successfully weather conditions such as these. Our Funds are unleveraged, which means portfolio risk is inherently low. Furthermore, our properties are purposefully located in growing cities with diversified economies, which support cash flows and asset values. We have been proactively working to limit vacancy, and the majority of our tenants have continued to pay rent on time and in full.  Some have had their health and/or employment impacted by the pandemic, but we have been working close with our property management team to help tenants secure the government unemployment benefits they need.

For the remaining fund capital yet to be deployed, we are being conservative. Our overall strategy remains unchanged: to acquire stable, cash-flowing properties in locations with growing populations and diverse economic bases. However, given the recent spikes in COVID-19 case rates, uncertainty around the potential future impacts of a “second-wave,” or cessation of government economic support/stimulus payments to businesses and individuals, we are being cautious in the near term while also trying to optimize returns to investors. 

We have not yet seen significant drops in multifamily residential asset prices in our target markets, which is balanced by the fact that supply is also very thin, much lower than in Jan/Feb. We will continue to be selective and aggressive on price until we see more clarity come through from the economic front. This means not rushing to buy into a market, but still working to actively identify and pursue properties that present good value.

The number one rule in investing is “Don’t Lose Money.” Our focus at BENA Capital is and has always been on the protection and preservation of our investors’ capital and the trust they have placed in us.

Debt-Free Investing

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Many of our investors reach out to us because they are looking for a debt-free investing solution – some are looking to diversify their portfolios, others for passive income with lower risk profiles, still others look for shelter from recession, or choose to invest debt-free because of religious beliefs.

BENA Capital was founded on the principle that it’s possible to invest with peace of mind by being debt-free. Debt obligation wiped out trillions in household wealth during the Great Recession. The ripple effects have been so long-lasting for so many, that even when debt is cheap, a remnant worry lingers that default amidst another financial crisis would put them at risk of going under.

In today’s COVID-19 reality, in an environment of high unemployment, experienced investors are looking to limit risk and preserve their capital. In our specific sector – real estate – the multifamily residential asset class has seen tremendous growth since the last recession. With the US economy officially in a recession again, those who have invested wisely and who have managed their properties efficiently will weather the storm. Those with healthy asset financials and capital reserves who are well-positioned to strike when new opportunities arise will emerge stronger. Conversely, those who have chased high risk scenarios, especially those who are overleveraged will be even more exposed.

In certain markets, especially in cities where the government stimulus has not been enough to help cover rental payments, occupancy and lease rates have seen unprecedented falls. If we look in the California Bay Area, apartment rental site Zumper reports that one-bedroom rents in San Francisco dropped by over 9% YOY this month. In Mountain View, prices for one-bedrooms fell 16%, Menlo Park and Cupertino by 14%, and Palo Alto by almost 11%. Furthermore, emergency ordinances have been put in place where landlords may have limited recourse against renters unable to pay. No one could have foreseen a pandemic, but for direct investors, this means that it’s more difficult to cash flow and cover debt. Overleveraged investors risk losing their properties, and in some cases, their personal assets.

Investing in a debt-free fund protects your portfolio from downside risk. It is a solution for investors looking to diversify their risk profiles, and it offers a better alternative to low-yield savings accounts and bonds. While returns may be lower than leveraged funds in times of economic expansion, it can provide stable income and a safe haven when the economy contracts unpredictably like it has this year.