Why Location Still Matters More Than the Lease in STNL Investing

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Featured Article

One of the most common phrases in single-tenant net lease (STNL) investing is:
“Buy the lease, not the real estate.”

While the lease is critically important, that mindset—taken too far—has caused more long-term value erosion than almost any other underwriting shortcut.

In reality, the lease produces income, but the location protects value. And when the lease weakens, expires, or resets, the real estate becomes the deciding factor.

Here’s why location still matters more than the lease—and why the best STNL investors never separate the two.

The Lease Is Temporary. The Dirt Is Permanent.

Even a 20-year lease has an expiration date.

When that day comes, investors are left with one asset that determines the outcome:

• The site

• The trade area

• The demographics

• The access and visibility

• The zoning and alternate-use potential

A strong location gives you options. A weak one leaves you exposed.

Why “Great Lease, Weak Location” Is a Dangerous Trade

Long-term leases can mask real estate risk—sometimes for decades.

Common red flags that get ignored:

• Declining population trends

• Single-employer towns

• Poor ingress/egress

• Oversupplied retail corridors

• Obsolete site layouts

• Low barriers to entry for competitors

These issues may not matter today while rent is being paid, but they matter immensely when:

• The tenant requests rent relief

• The lease expires

• The property goes back to market

• Financing tightens

• Buyer demand shifts

At that point, the lease no longer protects you—the location does.

How Sophisticated Investors Underwrite Location

Strong STNL underwriting treats the property as if the tenant could disappear tomorrow.

Key questions include:

• Would another tenant want this site?

• Could it support a similar rent?

• Is the zoning flexible?

• Does the site work for multiple uses?

• Is the trade area growing or shrinking?

• Would redevelopment make sense if required?

If the answer to most of these is “no,” the investment is closer to a bond than real estate—and bonds eventually mature.

Location Drives Renewal Probability

Tenants renew for one primary reason: the site still works for their business.

High-renewal locations typically feature:

• Strong traffic counts

• Dense or growing population

• High barriers to relocation

• Limited competitive supply

• Proven unit-level performance

Weak locations often face:

• Relocation leverage by the tenant

• Rent reductions at renewal

• Shorter extension terms

• Eventual vacancy

This directly impacts both income stability and exit pricing.

Why Buyers Pay More for Strong Dirt

When leases shorten, buyers become far more selective.

Assets in strong locations benefit from:

• Larger buyer pools

• Better financing terms

• Tighter cap rate expansion

• Stronger re-tenanting assumptions

• More favorable exit scenarios

In contrast, weak locations experience:

• Rapid cap rate expansion

• Limited lender appetite

• Reduced liquidity

• Binary outcomes at lease expiration

This gap becomes more pronounced as the lease term burns off.

The Right Way to Think About STNL Risk

The most resilient STNL investments sit at the intersection of:

• Strong tenant

• Well-structured lease

• High-quality real estate

If one element weakens, the other two must compensate.

The mistake is assuming the lease alone can carry the investment indefinitely.

Final Thought

STNL investing is not just about buying income—it’s about protecting future options.

Leases create cash flow.
Locations create durability.

If you’re evaluating an STNL deal and want an objective look at whether the real estate truly supports the lease—or if you’re holding an asset where location risk is creeping in—reply to this email. I’m happy to walk through the analysis with you.

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