Many investors seek to incorporate real estate into their investment strategy. Purchasing properties is the most obvious way to do this, but there is another way to invest in real estate: by purchasing shares of a real estate investment trust (REIT)!
REITs are offered in a few different forms including equity REITs, mortgage REITs, and hybrid REITs. Some focus specifically on certain types of real estate, whereas others may acquire multiple forms of real estate.
In this article, we’ll be focusing on retail REITs. More specifically, we’ll be talking about REITs that focus primarily on U.S. grocery-anchored real estate. Is there a reason why grocery stores or a grocery-anchored shopping center could be preferable to other types of retail space?
By the end of this article, you’ll have an answer!
What Are REITs?
A REIT is a type of company that purchases, manages, or finances multiple properties. Every property they engage with is income-producing; they take this realty income and pay out 90%-100% of the taxable income to investors in the form of dividends.
The REIT is responsible for managing the properties, collecting rent, and general upkeep. Investing in a REIT allows investors to benefit from the income generated by the properties, without actually having any of the responsibilities.
The only thing an investor is responsible for is providing capital. The REIT will handle the rest.
REITs are often publicly traded on major stock exchanges (publicly-traded REITs), although some are considered public, non-traded REITs. These REITs aren’t listed on the stock exchanges, but the general public can still invest.
Lastly, there are private REITs. These REITs are regulated by the SEC (Securities Exchange Commission), unlike the other two types. As the name suggests, these trusts are not open to the general public.
Why Should I Invest in Grocery Store REITs?
All retail REITs have some form of realty income, regardless of the property types you’re dealing with. Properties in the REIT are leased out to generate income. This is the primary form of realty income for REITs, whether you’re talking about retail REITs or a multi-family REIT.
However, rental income is only one way that retail investments can generate revenue. The property value itself can also appreciate, which in turn results in higher rental payments once the current lease is up.
Of course, this is never guaranteed to happen, but it is more common with certain property types than it is with others. Appreciation is impossible to predict with a mixed-use property, but it’s almost certain with active retail properties.
This is what makes investing in retail REITs focused on grocery stores & their surrounding properties such a successful endeavor. Groceries are a necessity, which means consumers will always need groceries (even if the economy takes a turn for the worse).
The same can’t be said for other types of businesses, such as phone stores. When the economy is doing well, the phone store will likely be able to sell a lot of phones and easily afford their rent.
However, if the economy crashes and people are no longer interested—or able—to purchase new phones, the phone store will start to lose revenue. If the revenue decreases substantially, then the store may struggle to pay rent. If that’s the case, it’s unlikely that the store will renew the lease.
This isn’t the case with grocery stores. While grocery-anchored centers are certainly susceptible to changes in the economy, they are somewhat protected by the fact that they provide essential items. This fact makes it unlikely that their businesses will suffer severe financial difficulties. In turn, it’s fair to assume that rent will always be on time!
An Alternative to REITs
As we’ve established, investing in grocery store real estate is an excellent way to gain predictable realty income. However, REITs don’t focus on singular properties. Instead, these real estate companies allow you to purchase shares in multiple pieces of income-producing real estate.
This means that although part of your investment may be protected against the economy, chances are, your shares of the REIT include commercial properties that aren’t protected.
Fortunately, there is a way to invest in only grocery-anchored centers & grocery stores: by investing through First National Realty Partners!
Whereas a REIT allows you to invest in multiple pieces of income-producing real estate at once, FNRP allows you to select which specific commercial properties you’d like to invest in. The company vets all of its properties and anchor tenants, resulting in high-end properties from reputable tenants (recognizable brands).
Similar to a REIT, FNRP takes care of property management, selection, and acquisition with its management team. This narrower focus and limited range of tenants allows the company to provide consistent revenue in the form of monthly payments or quarterly payments for investors.
Preparing to Invest in Grocery Store REITs
Finding income-producing real estate isn’t as hard as it used to be. These days, even non-accredited investors have the chance to invest in high-end properties through various real estate companies.
For most, investing in a grocery store REIT offers the perfect balance of predictability and performance. However, private offerings can often provide greater returns than public offerings.
If you’re interested in taking advantage of one of these exclusive, private offerings—or just seeing how the performance differs—then you can click here to find out more about FNRP.
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