Navigating quantitative deserts in the net lease industry

This article was written by David Sobelman, CEO and founder of 3 Properties.

I have been asked many times in my professional career, “do you ever sleep?” The fact is I don’t sleep well. I want to accomplish a lot and serve as many people as possible, and that takes up a lot of mental real estate. But now that I have the benefit of fifteen years in the net lease industry, it’s often the future challenges that keep me awake at night. Challenges such as the dearth of reliable net lease market data, and the increasing number of net lease brokers.

The industry suffers from data fragmentation

With a discernible commercial real estate (CRE) and triple net lease (NNN) ownership market, one would assume that the industry would be easy to quantitatively evaluate. But it’s not.

Brokerage companies – commercial, residential, or otherwise – are known to have one of the most archaic business models in real estate, regardless of segment.

CRE brokerage still rests its success, or lack thereof, on a relationship-driven and geographically specific model. In essence, brokerages view the longstanding client-broker personal relationship as the main driver of obtaining new business.

Moreover, clients value the trust built with an individual person in which they have previously conducted business. Some also continue to think that a broker with a specific geographical presence is the only, or one of the only, professionals that can sufficiently service their property.

But these factors are not quantitative measures of performance, and ultimately lead to siloed professionals and data fragmentation.

There are an estimated 400 individual NNN brokerage firms throughout the U.S. The vast majority of these firms are small, private companies that employ 1–30 people. Even large, publicly-traded CRE firms that employ thousands of people, and have a NNN brokerage platform within their operations, only employ roughly 10–30 people whose sole focus is NNN properties.

It’s reasonable to conclude that the NNN CRE brokerage market is decentralized and has little ambition to aggregate and share data on a singular platform.

Net lease brokerage is growing

While it is very difficult to identify the precise number of NNN brokerage firms within the U.S., the estimated 400 brokerage firms that have NNN operations are gaining prominence in the investor community.

With an estimated average of 7 brokers focused on NNN properties at each firm, a reasonable estimate puts the number of NNN practitioners in the U.S. at 3,000.

As a measure of the entire commercial real estate brokerage community, the International Council of Shopping Centers (ICSC), the main real estate trade association focused on retail commercial real estate, has a membership of approximately 70,000 practitioners. Meaning, roughly five percent (5.0%) of the trade association’s practitioners focus primarily on NNN assets.

Fifteen years ago, when a sole focus on NNN properties was a complete anomaly, there were an estimated 50 brokers NATIONWIDE that saw themselves as NNN specialists. Compare that to today’s roughly 3,000 brokers – that’s what keeps me up these days

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