Investing in Net-Lease Commercial Property

On May 5, 2025, Rite Aid filed for bankruptcy for the second time in nineteen months. The first filing, on October 15, 2023, had closed roughly 800 of the more than 2,100 stores it then ran; the company emerged in September 2024, lasted eight months, and had 1,277 stores when it filed again. This time there was no reorganisation. The company slated 47 stores to close in May, roughly 1,000 more began to shut in June, and by October 2025 every Rite Aid in the country was dark. More than 1,200 properties, leases and owned buildings alike, went to market at once, most of them 11,000-to-15,000-square-foot boxes on hard corners in Pennsylvania, New York, California and the Pacific Northwest, purpose-built for a pharmacy and rented, until that spring, at pharmacy rents.

Many of those buildings belonged to individual investors who had bought them precisely because they looked safe. A drugstore on a 20- or 25-year lease, with the tenant paying every expense and a corporate guarantee behind the rent, was for two decades the retirement plan of the American landlord: sell the apartment building, exchange into a Rite Aid or a Walgreens under Section 1031, and collect a cheque for the rest of your life. What the owners learned in 2025 is that the cheque was only ever as good as the signature on it, and that a bankruptcy court can cancel a lease with 12 years left and cap the landlord’s claim at a fraction of what was owed.

That is the whole subject in one scene. A net-lease building is a bond with a roof: a promise to pay, made by a company, secured by real estate that is often worth much less without that company in it.

This guide is the mechanism and cost of that instrument, the 2026 cap-rate tape by tenant and sector, the credit question that decides everything, the REITs and trusts that package the asset for smaller cheques, the tax treatment, and a $2 million building worked against $50,000 of REIT stock. On this hub Investing in Luxury Real Estate, the flagship, covers the trophy house and its carry, Investing in 1031 Exchanges covers the exchange and the DST industry’s loads, Investing in Short-Term Rentals covers the house that works for a living, Investing in Real Estate Syndications and Private REITs covers the pooled wrappers and their sponsors, Investing in Opportunity Zones covers the tract-designated development regime, and Buying a Second Home Abroad covers the same purchase across a border; this one covers the building you exchange into.

A lease allocates the costs of a building between the owner and the occupant, and the vocabulary that grows out of that allocation, the grades of net lease, the four kinds of participant and the cap rate that prices them all, explains most of what follows. Under a gross lease the landlord pays everything and the tenant pays rent; under a net lease the tenant pays rent plus some or all of the building’s operating costs. The trade counts the “nets”. A single-net lease (N) passes property taxes to the tenant. A double-net lease (NN) passes taxes and insurance, and leaves the landlord responsible for the roof, the structure and often the parking lot.

A triple-net lease (NNN) passes taxes, insurance and maintenance, so the rent arrives with nothing deducted; and the strictest form, sometimes called an absolute or bondable net lease, makes the tenant responsible for everything including the rebuilding of the property after a fire, so that the landlord’s only obligation is to have signed. A surprising amount of what is marketed as “NNN” is really NN, and the difference is a new roof at $150,000 to $400,000 on a 14,000-square-foot box.

A ground lease is a different animal. The landlord owns only the land and rents it, typically for 15 to 25 years with options, to a tenant who builds and owns the building on top. The rent is lower, because the tenant has capital in the building; the security is higher, because a tenant who walks away forfeits its own construction and the building reverts to the landowner at the end of the term. This is why McDonald’s and Chick-fil-A ground leases trade at the lowest cap rates in the market: the landlord is lending land to an investment-grade credit that has posted its own building as collateral.

The participants are four. On the selling side are the corporations that build stores and sell them with a lease attached (a sale-leaseback, of which SLB Capital Advisors counted 714 in the US in 2025 worth about $14.4 billion, the most since 2022), the developers who build a store to a tenant’s specification and sell it on completion, and existing owners trading out.

On the buying side are the private investors who, by Northmarq’s count, made 53% of single-tenant purchases in 2025, the institutions at 20%, and the listed REITs, whose share fell from 17% in 2024 to 8% in 2025 as their cost of capital rose. Between them sit the brokerages, with Marcus & Millichap, CBRE, Northmarq, JLL, Colliers and The Boulder Group the names you will meet on the offering memoranda, and the lenders, mostly regional banks, life insurers and, for larger portfolios, the CMBS market.

Price is discovered through the cap rate: the property’s annual net operating income divided by its price. A building renting for $140,000 a year that sells for $2,000,000 trades at a 7.00% cap. Because the tenant pays the expenses, net operating income on a true NNN lease is the rent, so the cap rate is simply the yield you are buying, before financing, before tax and before anything goes wrong. The market quotes everything in it: a “5.00% cap” is a price, and a rising cap rate means falling prices for the same rent. Brokers publish asking cap rates and the trades close a little wider; Boulder measured the bid-ask gap at 22 basis points for both retail and industrial in the second quarter of 2026.

Who is on the other side? When you buy, a developer or corporation that knows the building and the tenant’s plans for it better than you will; when you sell, a private investor pricing the remaining term, who demands a wider cap rate for every year that has run off. Between them sits the tenant, who negotiated the lease before you arrived and whose interests, low rent and the right to leave, are opposite to yours.

There is no clean thirty-year total-return index for privately held single-tenant buildings, because most trade once a decade between private parties and nobody marks them in between, so the honest record depends on which twenty years you pick. What exists is the brokerages’ cap-rate series, which says what the yield was at purchase, and the listed REITs, which report a total return every day.

The listed record first. Realty Income, the largest net-lease owner, listed on the New York Stock Exchange in 1994 and reports a compound annual total return since then of a little over 14% in its own investor materials (the figure moves with the as-of date: 14.6% and 14.2% appear in 2023 factsheets, and a 2026 comparison put it at 13.3% against 11.1% for the S&P 500). That is a real outperformance, earned mostly in the two decades when cap rates fell from around 9% to below 6%, and it is the number the sector’s marketing rests on.

The ten-year record is the opposite story: from 2016 to 2026 the same stock returned roughly 35% in total against roughly 300% for the S&P 500, by one third-party tracker’s arithmetic, because the yield compression reversed after 2021. The first number is what net lease does when rates fall; the second what it does when they rise.

The private record is the cap-rate cycle, and The Boulder Group’s quarterly Net Lease Research Report has tracked it since the 2000s. Retail net-lease cap rates stood at 6.23% in the second quarter of 2017, fell to a record low of 5.80% in the third quarter of 2021 (office 6.80%, industrial 6.70%, both also records), touched new lows again in the first quarter of 2022, and then rose for three years as the Federal Reserve lifted rates, reaching 6.60% for retail and 6.82% for the sector as a whole by the second quarter of 2026.

Eighty basis points of cap-rate expansion on a building bought at 5.80% is a price fall of about 12% for the same rent, before the lease got five years shorter. That is what an owner who bought a Dollar General in 2021 has lived through, and it is why the 2025 transaction market was dominated by private buyers rather than the REITs, who could see the arithmetic in their own share prices.

The return on a net-lease building has three parts, and only one is the cap rate. The cap rate is the coupon; the second part is the change in cap rates between purchase and sale, a bet on interest rates you did not know you were making; the third is what happens to the tenant. Between 1994 and 2021 the second was a tailwind of roughly 300 basis points and the third was benign. The marketing return is the sum of all three, sold to you at the moment the first two have turned.

Two numbers price every net-lease building: the cap rate the market asks for its sector and its tenant, and the spread between that cap rate and the 10-year Treasury, which is what tells you whether you are being paid for the risk. The 2026 tape for both follows, and the rule at the end of the section is built on the second.

The Boulder Group’s second-quarter 2026 report, published in July 2026, put the overall single-tenant asking cap rate at 6.82%, up two basis points on the quarter. Retail rose five basis points to 6.60%, industrial ten to 7.25%, and office held at 7.90%. Inside retail the sub-sectors spread out exactly as credit would predict: auto service 6.45%, corporate-operated quick-service restaurants 5.85%, franchisee-operated ones 6.85%, dollar stores 7.49% and drugstores 7.85%. The supply of properties on the market rose 12.5% in the quarter to about 5,800, the largest inventory in several years, as owners who had waited for rates to fall gave up waiting.

The tenant-level tape is more useful than the sector one, because you buy a tenant, not a sector. Boulder’s Net Lease Tenant Profiles report for the first quarter of 2026, reflecting asking prices as of March 2026, priced a 15-year Chick-fil-A ground lease at 4.20–4.50% and a 15-year McDonald’s ground lease at 4.30–4.60%: the two best credits in American retail, on leases where the tenant owns the building, at yields below the Treasury. A 15-year 7-Eleven asked 5.00–5.40%. A 15-year Dollar General asked 6.75–7.05% and up. And Walgreens spanned 6.40% to 9.00% depending on the term remaining, with a five-year Walgreens at 8.60–9.00%: the same tenant, priced 250 basis points apart by how many years of its promise you were buying.

The spread

A cap rate is a bond yield in disguise, and it decomposes the way a bond yield does: the risk-free rate, plus a premium for the tenant’s credit, plus a premium for the building’s illiquidity and the chance you get it back empty, minus whatever growth the lease’s rent escalations promise. The risk-free leg moved most. In the third quarter of 2021 the 10-year Treasury yielded about 1.3% and retail net lease asked 5.80%, a spread of roughly 450 basis points. On September 8, 2026 the 10-year closed at 4.79%, having touched 4.818% on September 2, its highest since November 2023 by CNBC’s reckoning, while the sector asked 6.82%: a spread of about 200 basis points.

At the top of the credit curve the spread is negative. A 4.35% Chick-fil-A ground lease yields 45 basis points less than the government of the United States, and the buyer accepts that because the lease escalates, the land will be worth more in 15 years, and the building on it is free at the end.

Whether 200 basis points pays you for the risk is the question this guide keeps returning to. For a sense of what normal looked like, in the second quarter of 2017 Boulder had retail at 6.23% (office 7.14%, industrial 7.37%) while the 10-year yielded roughly 2.2–2.3% by FRED’s daily series, a spread near 400 basis points; the 1031 guide on this hub puts the 2026 compression at “about 200 basis points on average and to almost nothing at the top of the credit curve”. A spread that thin means the market is pricing net lease as if tenants do not default and buildings do not go dark, in the same three years in which both happened at scale.

A net-lease building with fifteen years of rent left is a fifteen-year corporate bond that happens to have a parking lot. The rating agencies rate the corporation, not the building, and the market prices the lease accordingly. Investment grade means a rating of BBB− or better from S&P or Baa3 or better from Moody’s, and it is the line that divides the market: Agree Realty reports that 65.8% of its rent came from investment-grade retailers at June 30, 2026, and 73.2% of what it bought in that quarter did, because an investment-grade tenant lets a REIT borrow cheaply against the lease. Below the line the tenant is either unrated, rated junk, or is a franchisee whose promise is worth exactly its own balance sheet.

Dollar General is the reference case for the middle of the market. It is rated BBB by S&P and Baa3 by Moody’s, which downgraded it from Baa2 on March 28, 2025 to the last rung of investment grade over weaker margins and interest coverage, and it operated 20,942 stores in 48 states at February 27, 2026, its fiscal year-end, more locations than any other retailer in the country.

Its standard lease is 15 years, typically flat through the primary term with rent increases of about 10% at each five-year renewal option, a structure that is quoted here from the leases we have seen rather than from a published schedule. A flat 15-year lease to a Baa3 credit at a 6.90% cap is a fair description of what most first-time net-lease buyers actually purchase, and the arithmetic of the worked example is built on it.

The drugstores were the reference case for the top of the market until 2023. Walgreens and CVS signed 20- and 25-year leases, most of them flat for the entire term, on 13,000-to-15,000-square-foot freestanding boxes at rents that reflected a pharmacy’s economics rather than the building’s. Walgreens went private on August 28, 2025, when Sycamore Partners closed its roughly $10 billion take-private, and no longer has a public equity cushion beneath its lease guarantee; the drugstore sector’s 7.85% cap rate in the second quarter of 2026, 125 basis points wide of retail as a whole, is the market’s opinion of that.

Quick-service restaurants divide by who signs. A corporate McDonald’s or Chick-fil-A ground lease is the best credit in net lease; a franchisee lease on a Burger King is a loan to a private operator with 20 or 200 stores, and Boulder priced the difference at a full 100 basis points in the second quarter of 2026 (5.85% corporate against 6.85% franchisee). Escalations here are usually 10% every five years or 1–2% a year, which is why QSR trades tighter than the flat drugstore lease even at similar credit; 7-Eleven, whose parent is Japanese-listed Seven & i, sat between at 5.00–5.40% in March 2026.

Industrial net lease is the institutional end, where Realty Income put about 65% of its second-quarter 2026 investment; its 7.25% cap rate is wide of retail because re-leasing a 200,000-square-foot warehouse is a different exercise from re-leasing a corner, and for a $2 million buyer it is mostly out of reach.

Reading the lease

Five terms decide the value of the promise, and every offering memorandum buries at least one. The guarantor: parent, subsidiary or franchisee, and does the guarantee survive assignment? The term remaining, not the original term; a 25-year lease with eight years left is an eight-year lease. The escalations, if any. The options, which belong to the tenant: five five-year options at fixed rent are a 40-year call on your building. And the assignment and go-dark clauses: whether the tenant may hand the lease to a weaker operator, and whether it may close the store while continuing to pay, which is legal under almost every net lease and is the subject of the next section.

Walgreens and CVS anchored private net-lease portfolios for twenty years, and what happened to their leases after 2021 is the clearest record of what a change in a tenant’s business does to a long lease.

On October 15, 2024 Walgreens announced it would close about 1,200 stores over three years, roughly 500 of them in its 2025 fiscal year, out of 8,560 US locations at August 31, 2024 (its fiscal 2024 annual report), and said it would prioritise unprofitable stores that it owned or whose leases were expiring; CVS had announced on November 18, 2021 that it would close about 900 stores, roughly 300 a year over 2022–2024, about 9% of its 9,900-odd pharmacies. The share prices of the net-lease REITs with drugstore exposure fell on the news, and the private market repriced faster: by March 2026, as the previous section showed, a Walgreens with five years left asked 8.60–9.00% while a long-dated one asked 6.40%.

Then the story turned in a way that illustrates the second risk. Sycamore’s take-private closed on August 28, 2025, and the new owners adopted what Northmarq’s research desk called a “shrink-to-core” model: keep the productive corners, let leases expire where they expire, close what is cash-flow negative. By 2026 Walgreens had about 8,000 US stores and expected fewer than 100 closures in the year, far below earlier projections of up to 700, according to reporting in TheStreet. The closure criteria it published are the ones that matter to a landlord: stores that lose money, stores the company owns outright, and stores where the lease expires within a few years. A landlord with 12 years left on a flat lease at an above-market rent is, perversely, the safest, because the tenant cannot leave without paying.

That is the dark store: a building on which the tenant keeps paying rent after it has closed the business inside. Under nearly every net lease the tenant’s obligation is to pay, not to operate, so a Walgreens that shuts a store with a decade left will usually keep sending the cheque, sublet the box to a discount grocer or a gym at a fraction of its rent, or offer the landlord a lump sum to terminate.

All three are worse than they sound. A dark store cannot be sold at a drugstore cap rate, because the next buyer prices the lease expiry rather than the credit; it cannot be refinanced on the same terms; and when the lease ends the building is a 14,000-square-foot box with a drive-through, built for one use, in a market where the other pharmacy chains have also stopped opening stores.

The question to ask before you buy is at what rent a Dollar Tree, an urgent-care operator or a credit union would take the building, against the rent the offering memorandum capitalises; drugstore rents were commonly set at multiples of what a general retailer would pay, a gap the market has been closing since 2023 one closure at a time.

The mechanism generalises. Every net-lease building carries two values: the lease, which the cap rate measures, and the real estate without it, which is what you own the day the tenant leaves. The wider the gap, the more of your price is really a loan to the tenant. A Chick-fil-A pad at a mall entrance has a small gap; a Walgreens on a secondary corner in a town of 30,000 has a large one; and the cap rate tells you nothing about the second value. Ask for the land value and the rent per square foot, and ask what the building is if the sign comes down.

Coresight Research counted 32 retailer bankruptcies in the first half of 2025 alone, against ten in the first half of 2026, and the chains that closed the most stores, by CoStar’s tally, were Rite Aid, Joann, Party City and Big Lots. Rite Aid’s second filing on May 5, 2025 liquidated all 1,277 remaining stores by October. Joann, the fabric chain, filed for the second time on January 15, 2025 and closed all of its roughly 800 stores by May 31. Party City, which had filed on December 21, 2024, closed its roughly 700 stores by the end of February 2025. Big Lots, which had more than 1,300 stores in 48 states when it filed on September 9, 2024, saw about 200 of them reopened under Variety Wholesalers in the spring of 2025.

Red Lobster’s May 2024 filing closed about 130 restaurants, one in five of its fleet, many of them the subject of a 2014 sale-leaseback that had loaded the chain with above-market rent. At Home filed on June 16, 2025 with a plan to close 26 stores that had grown to about 30 by August; Claire’s filed for the second time on August 6, 2025 and closed 291 Claire’s and Icing stores by September 7. Coresight counted 8,270 US store closures in 2025 and projects about 7,900 in 2026, 4.5% fewer, which it reads as the wave having peaked; its mid-year 2026 count was 3,321, down 44% on the same point of 2025.

What a filing does to a lease is governed by Section 365 of the Bankruptcy Code, which lets the debtor assume the leases it wants and reject the rest, and by Section 502(b)(6), which caps the landlord’s damages claim for a rejected lease at the greater of one year’s rent or 15% of the rent for the remaining term, up to a maximum of three years’ rent, measured without acceleration from the earlier of the filing date and the date the landlord got the premises back, plus any rent already unpaid at that date.

The cap is the number that matters. An owner with 12 years left on a Rite Aid lease at $300,000 a year had a contractual claim of $3.6 million and a bankruptcy claim of at most $540,000 (15% of $3.6 million), payable as an unsecured creditor in a liquidation that, by Bloomberg Law’s account, drew objections from landlords, pension funds and insurers over whether it could pay its bills at all. The practical recovery on a rejected lease in a liquidation is usually cents on the dollar, and the building comes back to you with the tenant’s fixtures removed.

The large landlords report what they got back. Realty Income disclosed on its third-quarter 2024 earnings call, after Rite Aid’s first bankruptcy, an 88% rent recapture on 29 Rite Aid locations, meaning the replacement tenants pay 88% of what Rite Aid had, and 91% on 216 Red Lobster restaurants; its overall recapture on re-leasing was 102.7% in the second quarter of 2026, and NNN REIT’s occupancy rose to 99.1%.

Those are the numbers of companies with 15,588 and 3,774 buildings, leasing teams in every region, and the ability to carry a dark box for two years without missing a dividend. A private owner with one building has none of that; the recovery on a single rejected lease is the market rent for an empty box or zero, and it takes 12 to 24 months to find out which.

The bankruptcies also settled an argument about sale-leasebacks. Red Lobster’s 2014 sale of its restaurants to American Realty Capital Properties for $1.5 billion, made to finance Golden Gate Capital’s $2.1 billion purchase of the chain from Darden, with leases whose rent had reached about $190 million a year, roughly 10% of revenue, by 2023 (Restaurant Dive), is the case every credit committee cites: a sale-leaseback converts a company’s real estate into long-dated debt with no covenants, and the landlord who bought the paper at a 7% cap discovered that the rent was why the tenant failed. The 714 sale-leasebacks of 2025 were mostly healthier, but the rule holds: when the seller is also the tenant, the rent was set to maximise the sale price, not to be sustainable.

The inventory is public and large. Boulder counted about 5,800 single-tenant properties listed for sale in the second quarter of 2026, up 12.5% on the quarter, and Northmarq recorded $51.4 billion of single-tenant sales in 2025, with the fourth quarter’s $16.0 billion up 39.1% on the third. The listings sit on the brokerages’ own sites and on the aggregators (LoopNet, Crexi), and the offering memorandum for each will state the tenant, the lease term, the rent schedule, the cap rate and the price. Almost everything under $5 million is bought by a private individual, a family partnership or a 1031 exchanger, and the exchangers, who must identify a replacement within 45 days of selling, are the reason the asking cap rates on the best credits stay tight: they are buying against a deadline.

The broker works for the seller and is paid by the seller, typically 3–6% of the price on a small deal and less on a large one, a range we quote as customary rather than from any published schedule. As a buyer you pay for title insurance, escrow, a survey, a Phase I environmental report, your own lawyer’s review of the lease, and the lender’s fees if you finance: roughly 1–2% of the price on a $2 million purchase, or $20,000–$40,000. Round-trip friction, buy and sell, is therefore about 5–8% of the price, which on a 7% cap rate is a year of rent. That is the first thing the marketing does not say: a net-lease building must be held for a decade to amortise its own transaction costs.

The diligence is the lease, the tenant and the dirt, in that order, and it is what separates a bond with a roof from a box with a problem. Read the lease yourself, not the broker’s summary; check that the guarantor is the entity you think it is, that the landlord’s obligations really are none (roof, structure and parking lot are the usual exceptions in a lease sold as NNN), and what the tenant’s termination and go-dark rights are. On the tenant, pull the rating if there is one and the financial statements if there are not, and find out whether the chain has announced closures and on what criteria.

On the dirt, the Phase I is not optional: the gas stations, dry cleaners and auto-service centres that populate the net-lease market carry environmental liabilities that attach to the land, and a $3,000 report is the difference between knowing and owning one. Finally price the building empty, as the dark-store section said, and check that the rent per square foot is something a second tenant could pay.

Lenders like net lease because the cash flow is a contract. In 2026 a loan on a single-tenant property with a national credit tenant came from a regional bank, credit union or life insurer at 60–70% of value, up to 75% for investment-grade tenants, on a five-to-ten-year term with a 25-year amortisation; Select Commercial quoted NNN loans from 6.29% in June 2026, and Marabella Commercial Finance’s April 2026 survey put the best credits at 5.00–6.25%. The lender will underwrite the tenant as carefully as you should, will insist the loan matures before the lease does, and will require a debt-service coverage ratio, rent divided by the annual loan payment, of about 1.25× or better.

The arithmetic of leverage has changed sign for much of the market. Borrowing at 6.5% against a building yielding 7.0% adds only 50 basis points of spread on the borrowed money, and on a Chick-fil-A at 4.35% it subtracts: negative leverage, in which every borrowed dollar lowers the return on your own. Through the 2010s a buyer borrowed at 4% against a 6% cap and turned a 6% yield into 9% cash-on-cash; in 2026 the same trade turns 7.0% into about 5.2%, as the worked example shows, and what is left comes almost entirely from amortisation, your own money returned to you slowly. At 2026 rates, leverage in net lease buys a bigger building; it does not earn more on the same one.

The exit is where the lease’s clock shows. A building’s value is the rent capitalised at the cap rate the market applies to the remaining term, and that cap rate widens as the term shortens: the Walgreens tape, 6.40% long-dated against 8.60–9.00% at five years, is the clearest published example.

A Dollar General bought with 15 years left at 6.90% and sold ten years later with five left will be priced by the next buyer at something closer to 8%, on whatever the rent will be after the option-period bump, and on his own estimate of whether the tenant will exercise the option at all. The sale price can therefore be below the purchase price on an unchanged rent, and often is; the worked example sells at $1,925,000 a building bought at $2,000,000. Owners who understand this sell with 10 to 12 years left, when the cap rate is still a credit cap rate, or they hold through the option and accept that they own a building rather than a bond.

A real estate investment trust owns buildings, pays out at least 90% of its taxable income as dividends and pays no corporate tax on what it distributes. The net-lease REITs own thousands of the buildings this guide describes, lease them on the same terms, and finance them with unsecured bonds that an individual cannot issue. The three largest retail-focused ones are the sector’s reference points.

Realty Income owned or held interests in 15,588 properties leased to 1,798 clients in 92 industries at June 30, 2026, with occupancy of 98.8%. Its second-quarter 2026 adjusted funds from operations (AFFO, the REIT equivalent of cash earnings) rose 3.8% to $1.09 a share, its full-year guidance was raised to $4.44–$4.45, and it set an investment target of $10 billion for the year, of which about $2.6 billion was placed in the second quarter, 65% of it in industrial. It bought Spirit Realty Capital for $9.3 billion in stock in January 2024 to get there.

It pays monthly, $0.2710 a share or $3.252 a year, a 5.2% yield at the June 30, 2026 price of $61.96 (the quarter’s average share-sale price in its own filings was $61.52), which put the shares at about 14× AFFO. It is rated A3 by Moody’s and A− by S&P, and in August 2026 Fitch assigned it an A, making it the first net-lease REIT and only the fourth US REIT with an A-range rating from any of the three agencies.

NNN REIT, the former National Retail Properties, is the pure retail play: occupancy rose to 99.1% in the second quarter of 2026, AFFO grew 5.9% to $0.90 a share, annualised base rent passed $959 million, and the company raised its quarterly dividend 3.3% to $0.62, its 37th consecutive annual increase, a record shared by about 70 US public companies and three REITs. It invested more than $290 million in 89 properties in the quarter and lifted its 2026 AFFO guidance to $3.55–$3.59.

Agree Realty is the investment-grade specialist: 2,825 properties in all 50 states and 59.6 million square feet at June 30, 2026, with 65.8% of rent from investment-grade retailers and 73.2% of the quarter’s $502 million of acquisitions from them, including nine ground leases for $66.6 million. Agree’s model is the Chick-fil-A end of the market run at scale, and its cap rates are correspondingly lower.

What you gain is large: diversification across 15,000 buildings instead of one, a leasing department that recaptured 88% of Rite Aid’s rent where a private owner would have got a dark box, an investment-grade balance sheet, a daily price and a five-minute exit.

What you give up is less obvious. You own the sector at the share price, not the cap rate: a REIT at 14× AFFO is priced at an implied cap rate that moves with the stock market every day, and the ten-year record of roughly 35% while the S&P 500 tripled is what that looks like when the market decides net lease is a bond proxy in a rising-rate decade. You give up depreciation against your own income, because the REIT takes it. And you give up control: Realty Income buys industrial in Europe with your money and you find out in the 10-Q.

The 2025 buyer data says who thinks the price is right. REITs fell from 17% of single-tenant purchases in 2024 to 8% in 2025, by Northmarq’s count, because their share prices implied cap rates above what sellers would accept; private buyers rose from 43% to 53% and paid those prices. When the listed buyers, who see the arithmetic in their own cost of capital, step back and the private buyers step in, one of them is wrong.

The Delaware Statutory Trust is the wrapper through which most net-lease property reaches exchangers, and the DST industry’s largest product category is exactly the building this guide describes. A DST holds one or more properties and sells beneficial interests to accredited investors, who are treated for tax purposes as owning the real estate directly; that is what makes a DST interest eligible as a 1031 replacement, and it is why net-lease portfolios of dollar stores, pharmacies and grocery stores are the DST industry’s staple. The 1031 guide on this hub covers the exchange rules, the sponsors, the loads and the named failures, and does not need repeating.

The three facts to carry into this guide are that the industry raised $8.41 billion of equity in 2025 by Mountain Dell Consulting’s count, that broker-sold DSTs most often carry 7–12% in selling commissions, fees and offering costs before the money touches a building, and that the exit is usually into the sponsor’s REIT rather than back to cash.

The largest net-lease DST sponsor is ExchangeRight, which raised more than $620 million in 2025, the fifth-largest raise in the industry, passed $7 billion of assets under management, and reports average annual returns of 8.60% on its 34 full-cycle offerings since 2012. That figure is the sponsor’s own, computed on its own method, on offerings that were sold into a falling-rate decade; treat it as a ceiling, not an expectation. Inland Private Capital raised $716.1 million in the same year. Both sell portfolios of 15 to 40 net-lease boxes leased to Dollar General, Walgreens, Tractor Supply and their peers, at a net yield 100 to 150 basis points below what the same buildings ask individually, because the load is paid out of the spread.

Our own tape reads the DST market two ways. Invest Alternative stores the monthly equity raised across the DST industry as published by AltsWire from Mountain Dell’s data, and it stood at $985.1 million in July 2026, up from $693.4 million in May and $731.4 million in June, the strongest month on record. We also count new Form D filings that mention “Delaware statutory trust” on the SEC’s EDGAR full-text search over a trailing seven-day window, as a real-time proxy for offering activity: that count fell from 13 on August 28, 2026 to 6 on September 8, 2026.

The two series do not contradict each other; the first is the money closing on offerings launched months earlier, the second is the pipeline of new offerings, and a pipeline that halves in eleven days while long rates make new highs is the pattern to expect when sponsors pause launches to reprice. Both are our own readings and describe the DST market as a whole, not net lease specifically; net-lease and retail portfolios have historically been the single largest category of what that money buys.

The exchanger’s choice is between a building he picks and owns outright, with the commission paid by the seller and full depreciation on any basis above the property he sold, and a DST that hands him a diversified portfolio at a 7–12% load, no control and a sponsor’s exit. The 1031 guide works that arithmetic; the DST earns its load only when the alternative is missing the 45-day identification deadline.

The after-tax gap between a directly owned net-lease building and a net-lease REIT’s dividends is smaller than the cap rate suggests, and it runs in the opposite direction from what most buyers assume. Rent from a directly owned building is ordinary income, taxed at up to 37% federally plus the 3.8% net investment income tax of Section 1411 for a passive owner, and it arrives with three deductions. Mortgage interest. Depreciation on the building, but not the land, on a 39-year straight line for non-residential property under Section 168(c), so a $1.5 million building shelters $38,462 of rent a year.

The third deduction is a cost-segregation study, which reclassifies the parking lot, site lighting, signage and fixtures into 15-year and 5-year classes that, under Section 168(k) as amended by the One Big Beautiful Bill Act of July 4, 2025, qualify for 100% bonus depreciation in the year of purchase for property acquired after January 19, 2025. On a net-lease box the reclassifiable share is modest because most of the value is land and shell, but 15–25% of building cost taken in year one is common, and it turns the first two or three years of rent into tax-free cash.

One qualification: the 20% qualified-business-income deduction of Section 199A generally does not reach a triple-net lease, because the IRS’s rental real estate safe harbour (Revenue Procedure 2019-38) excludes triple-net arrangements, which it defines as leases requiring the tenant to pay taxes, fees, insurance and maintenance in addition to rent and utilities, and a single passive lease rarely rises to a trade or business on its own; a triple-net lease that does qualify as a trade or business on the general facts-and-circumstances test can still claim the deduction, which is a question for your accountant, not this guide.

On sale the depreciation comes back. Gain attributable to depreciation previously taken on real property is “unrecaptured Section 1250 gain”, taxed at a maximum of 25% rather than the 20% long-term capital-gains rate; any gain above that is taxed at 20%; and the 3.8% tax applies to both. The bonus-depreciated 5-year and 15-year components are Section 1245 property, and their recapture is ordinary income at up to 37%. Section 1031 defers all of it if you exchange into another property, and the 1031 guide covers the mechanics; the practical point for this guide is that a net-lease building whose price falls over the hold, as the worked example’s does, can still produce a taxable gain, because the basis fell faster than the price.

REIT dividends are taxed differently and, since 2025, permanently so. The ordinary portion of a REIT dividend is taxed as ordinary income, but Section 199A gives individuals a 20% deduction on qualified REIT dividends, which the One Big Beautiful Bill Act made permanent for tax years beginning after December 31, 2025 at the 20% rate (the House had proposed 23%). A 37% taxpayer therefore pays 29.6% plus the 3.8% surtax on the ordinary portion.

A part of most net-lease REIT dividends is classified as return of capital, which is not taxed when received but reduces your basis and is taxed as capital gain on sale, and a part may be capital-gain distributions taxed at 20%. The REIT investor gets no depreciation deduction of his own, because the REIT took it, and his exit is a stock sale taxed at 20% plus 3.8% on the gain over his reduced basis. State income tax applies to both routes in the states that levy one.

Ten years of rent, debt, depreciation, tax and sale, with every figure shown, is the only honest way to set a $2 million building beside the $50,000 REIT position most readers would actually buy; the assumptions are stated so that you can change them.

The building

Assume a Dollar General-type box bought on September 9, 2026 for $2,000,000 at a 7.00% cap rate, so the rent is $140,000 a year, flat for the remaining 15 years of the primary term, with a 10% increase at the first five-year option. The tenant is rated Baa3/BBB. Buyer’s closing costs (title, escrow, survey, Phase I, legal, lender fees) are $25,000.

You borrow $1,200,000, 60% of price, at 6.50% on a 25-year amortisation: the monthly payment is $8,102, or $97,230 a year, so the debt-service coverage ratio is 1.44×. Your equity is $825,000. Land is 25% of the price, $500,000; the building, $1,500,000, depreciates at $38,462 a year on the 39-year schedule, with no cost-segregation study in the base case. You are a 37% taxpayer subject to the 3.8% surtax, so the marginal rate on the rent is 40.8%.

Ten years of income

Cash flow after debt service is $140,000 minus $97,230, or $42,770 a year, a 5.18% cash-on-cash return on $825,000; over ten years, $427,702. Taxable income in year one is the rent less $77,417 of interest less $38,462 of depreciation, or $24,122, taxed at $9,842; by year ten, as the interest component falls, taxable income is $39,817 and the tax $16,245. Ten years of income tax total $127,684. After-tax cash flow over the decade is therefore $300,018, and the loan balance has fallen from $1,200,000 to $930,136, which is $269,864 of your equity returned through amortisation and not yet counted.

The sale

In September 2036 the lease has five years left on its primary term and the 10% bump takes rent to $154,000 at the option. The buyer prices that rent at 8.00%, a stated assumption for a five-year Baa3 lease that sits between the 6.75–7.05% a 15-year Dollar General asked and the 8.60–9.00% a five-year Walgreens asked in March 2026, so the price is $1,925,000, $75,000 below what you paid. Selling costs at 4% (3% commission, 1% closing) are $77,000. Your adjusted basis is $2,025,000 less $384,615 of depreciation, or $1,640,385, so the taxable gain is $1,848,000 minus $1,640,385, or $207,615, all of it unrecaptured Section 1250 gain because it is less than the depreciation taken: tax at 25% plus 3.8% is $59,793. After repaying the $930,136 loan you receive $858,070.

The result

You put in $825,000 and took out $300,018 of after-tax income plus $858,070 at sale, $1,158,088 in all: a profit of $333,088 over ten years, an after-tax internal rate of return of 4.0% a year. Before tax the IRR is 6.0%. Had you paid all cash, the pre-tax IRR would be 6.3% and the after-tax 3.9%: at these rates the leverage neither helped nor hurt. The 7.00% cap rate on the offering memorandum became 6.0% because the building lost 3.75% of its price and 5–8% of it went to transaction costs, and 4.0% because rent is ordinary income and the depreciation shield was smaller than the recapture.

$50,000 in a REIT

Put $50,000 into a net-lease REIT on the same day at Realty Income’s June 30, 2026 yield of 5.2%, and assume, as a stated assumption rather than a forecast, that the dividend and the share price each grow 3% a year (the company’s AFFO guidance implies about 4–5%; the last decade’s share price did worse) and that 20% of each dividend is return of capital. Ten years of dividends total $29,806, taxed at 29.6% plus 3.8% on the ordinary 80%, or $7,964. The shares are worth $67,196; your basis has fallen to $44,039 through the return of capital; the gain of $23,157 is taxed at 23.8%, or $5,511.

You put in $50,000, took out $21,842 of after-tax dividends and $61,685 at sale: a profit of $33,526 and an after-tax IRR of 6.1%, with no lease to read, no roof to argue about and no tenant to lose.

The REIT is not better real estate; it owns the same boxes. Its price already reflects a decade of cap-rate expansion, its dividends carry a permanent 20% deduction the direct owner cannot claim on a triple-net lease, and a single building has to pay its own transaction costs and absorb its own lease clock. Change the assumptions and the order can flip: a direct building bought at 7.75% and sold at 7.00% into a falling-rate market returns about 8.1% after tax on the same model, and a REIT whose share price falls 3% a year returns about 1.9% (with no credit taken for the capital loss at sale). The point of the worked example is to show which assumptions the outcome depends on: the exit cap rate for the building, the share-price path for the REIT, and the tax treatment for both.

Six failures turn a bond with a roof into a box with a mortgage. Each has happened, with a date, and each has a contractual or diligence defence, or none, which is the more important thing to know.

The tenant leaves and the expenses arrive

A single-tenant vacancy is a 100% hit to income, and on the same day the taxes, insurance and maintenance the tenant was paying become yours while the loan payment continues. On the worked example’s building an empty year costs $97,230 of debt service plus perhaps $35,000 of carry against $140,000 of rent that stopped: a swing of about $270,000 for every year the box is dark. Rite Aid’s landlords lived this from June 2025. The defence is diversification, which a $2 million buyer cannot achieve, or two years’ carry in reserve, which most do not hold.

The guarantee is not what it seemed

A lease “guaranteed by Dollar General” may be signed by a subsidiary; a franchisee lease on a nationally branded restaurant carries the franchisee’s credit and nothing else; a corporate guarantee may terminate on assignment. Walgreens’ take-private on August 28, 2025 is the institutional version: a public company with audited accounts and a share price became a private one whose covenant you can no longer see. Read the guarantor’s name and the assignment clause, and obtain an estoppel certificate, the tenant’s own signed statement of the lease terms, the rent, and any defaults, before closing; a forged or stale lease abstract in an offering memorandum is the net-lease market’s characteristic fraud, and the estoppel is the only document the tenant itself has signed for you.

The bankruptcy cap

The bankruptcy section set out the Section 502(b)(6) cap: the greater of one year’s rent or 15% of the remaining rent, never more than three years’ worth, paid in a liquidation alongside every other unsecured claim. Twelve years of contracted rent becomes, in practice, the building back and a claim worth cents. There is no contractual defence; the only one is the tenant’s credit and the building’s second use.

The lease outlives the loan

Net-lease loans run five to ten years against 15-year leases, and a refinancing in year seven at a higher rate, against a lease with eight years left, is where owners who bought at 5.80% in 2021 are standing in 2026. Match the loan term to your intended hold, not the lease, and model the refinancing at 150 basis points above today’s rate.

The rent was set to sell the building

Red Lobster’s 2014 sale-leaseback and the 2024 bankruptcy that followed is the record; every developer-built store carries the same incentive in smaller form, because the rent the developer negotiates with the tenant sets the price he sells you the building for. A rent 30% above what the box would command from a replacement tenant is a 30% overpayment hidden inside a market cap rate.

The wrapper

For DST buyers the risk moves from the tenant to the sponsor: the 1031 guide names the failures, the loads and the exit terms. A net-lease DST is only as passive as the sponsor’s leasing team and only as liquid as the sponsor’s REIT chooses to be.

Choosing between the listed route, a direct purchase and an exchange is a sequence, and the order below is the order it should happen in.

1. Decide the cheque and the reason. Under $1 million with no exchange to complete, buy the REITs: Realty Income, NNN REIT and Agree are the three largest pure plays, all listed on the NYSE, and a position can be built for a brokerage commission of nothing. With an exchange deadline or $2 million and up, go on.
2. Set a spread rule before you look. Write down the minimum cap rate you will pay over the 10-year Treasury for each credit tier (the IA Take in the cap-rate section suggests 175 basis points below A-rated) and the maximum share of price you will pay for the lease over the dark value of the box. Brokers will show you buildings that fail both; the rule is what stops you.
3. Read fifty offering memoranda before you bid on one. Boulder’s 5,800 listed properties and the aggregators make this a week’s work; note the guarantor, term remaining, escalations, rent per square foot and land value for each, and build your own tape of what tenants trade at by term.
4. Choose the tenant tier, then the building. A Baa3 dollar store at 6.90% and a corporate QSR ground lease at 5.85% are different instruments; decide which you are buying and why, then find the best box in that tier, on the best corner, with the longest term and the most reversible layout.
5. Underwrite the dark case. Rent a replacement tenant would pay, capitalised at 8.5%, against your price; if the answer is under 60%, you are lending to the tenant, and should price it as a loan.
6. Diligence the documents, not the summary. Full lease, all amendments, the guaranty, the estoppel, the title commitment, the survey, the Phase I and the tenant’s financials or rating report. Have a real estate lawyer who has read a hundred net leases read this one.
7. Finance for the hold you intend. A loan that matures before the lease and after your planned sale, at no more than 65% of price, and only if the cap rate exceeds the rate by at least 50 basis points; otherwise pay cash and accept the lower return on a larger equity.
8. Plan the exit on the day you buy. Decide at purchase whether you sell with 10–12 years of term left, exchange again under Section 1031, or hold through the options and own a building. Each is a different investment; the third requires you to like the real estate.

Eight readings would change the view. Each is stated at the level it stood at on September 8, 2026, so that a reader in 2027 can see at a glance what has moved.

• The 10-year Treasury, 4.79% at the September 8, 2026 close (CNBC), after a 4.818% high on September 2. Above 5.00%, every net-lease cap rate below 6.75% is negative carry after transaction costs and the listed REITs will fall faster than private prices adjust; below 4.00%, the 2021 arithmetic returns and the buyer who paid 6.90% in 2026 will be selling at 6.00%.
• Boulder’s overall net-lease cap rate, 6.82% in the second quarter of 2026. A print above 7.00% means sellers have capitulated and the bid-ask gap has closed from the sellers’ side; a print below 6.60% while Treasuries are above 4.5% means exchangers are overpaying and it is time to be a seller.
• The spread, about 200 basis points on September 8, 2026. Below 150, stop buying private net lease on any credit below A; above 250, the direct route beats the REITs again on the worked-example model.
• Drugstore closures. Walgreens guided to fewer than 100 closures in 2026 against a fleet of about 8,000; a return to the 500-a-year pace of the October 2024 plan would reopen the dark-store discount across the sector’s 7.85% cap rate.
• Retail bankruptcies. Coresight projected about 7,900 US store closures for 2026, 4.5% below 2025’s 8,270, and counted 32 retailer filings in the first half of 2025 against ten in the first half of 2026. A 2026 count above 2025’s means the wave did not peak.
• Dollar General’s rating, Baa3 by Moody’s since March 2025, BBB by S&P. One more notch from Moody’s takes the largest tenant in private net lease below investment grade and would move dollar-store cap rates by 50 basis points or more.
• Who is buying. REITs were 8% of 2025 single-tenant purchases (Northmarq), private buyers 53%. When the REIT share climbs back above 15%, listed capital has decided private prices are cheap, and it is usually right.
• Our tape. DST equity raised was $985.1 million in July 2026 and our seven-day Form D count fell from 13 to 6 between August 28 and September 8; a monthly raise below $600 million, or a Form D count that stays in single digits through the autumn, would say the exchange bid that supports tight cap rates on the best credits is thinning.