Underwriting tenant credit is standard practice in any acquisition, but no one, until now, has examined if that due diligence actually moves a buyer’s mind about value. A recent study found that tenant credit, despite being a key component of a buyer’s underwriting, may only slightly impact a buyer’s willingness to pay.¹ Does that surprise you? It surprised us, but maybe it shouldn’t have.

We’ll explain… but first, the research. The study focused on the most tenant-dependent type of real estate: single-tenant net-leased retail assets. Single-tenant assets come in several flavors, including industrial buildings fully leased to a manufacturer or Amazon, or office assets fully leased to a large corporate user. But those assets are often more operationally essential—and therefore more stable—than single-tenant retail properties, which are typically stand-alone drug stores, restaurants or big-box stores. Retailers, unlike industrial or office tenants, can fall out of favor quickly or lose business when competition moves in nearby. In other words, there’s more risk.

Because of that risk, you would think it’s critical to carefully assess tenant quality and the likelihood that rent gets paid over the full lease term. And that intuition is borne out—just not as strongly as you might expect. The study finds that “properties with tenants that are corporate owned, tenants with direct or subsidiary publicly traded ownership, and tenants with lower default probabilities trade at… lower cap rates.”

On average, properties leased to publicly traded tenants traded at cap rates 31 basis points lower than those leased to private tenants. Similarly, properties with corporate-backed tenants traded about 17 basis points tighter than those leased to franchisees. Other tenant characteristics matter as well, but much less—and it’s not clear these effects stack cleanly—so the total impact on value may be smaller than it first appears. These insights came from studying more than 8,000 STNL assets nationwide, with top tenants being Walgreens (9.6%), Dollar General (9.3%), CVS (5.5%) and Family Dollar (3.8%).

For most investors, it’s easy to look at a STNL property and think, “the tenant IS the asset.” You own one income stream associated with one business model and brand. But the data suggests otherwise: tenant credit explains only a portion of a property’s value. Maybe it moves pricing 5%–10% at most—meaningful, but far from dominant. The more interesting question is why it doesn’t matter more.

The reason: cap rates have a lot to bundle, and tenant credit is one input among many. Location, local supply and demand, capital markets, and expectations around growth all influence value—and therefore cap rates.

The spread between good credit and great credit is also narrower than it appears. Real estate owners don’t need the retailer to thrive, they just need it to be healthy enough to pay rent consistently, and most STNL tenants have business models durable enough to survive.

Beyond that, cap rates already price other factors related to the lease, like lease terms (shorter leases see higher cap rates), guarantees and the rents themselves, as low-rent leases are underwritten as lower-risk and trade at lower cap rates. These factors all lower the impact of tenant credit. And experienced owners with a pre-existing asset base will pay lower cap rates because even significant idiosyncratic risk to any one new asset equates to nominal additional risk to the portfolio.

Finally, real estate markets are not especially efficient. Transactions are infrequent, the market is opaque and pricing adjusts slowly. Unlike public equity markets, which reprice risk in real time, private real estate may lag—especially when tenant quality is changing.

In other words, tenant credit’s relatively small impact on value isn’t a sign that it’s not important. It’s a sign of how much other information the cap rate is already holding. That’s the paradox of cap rate: it compresses an enormous amount of information into a single relationship. It’s both the simplest number in real estate—and the most complex.

Who: Node Living

What: A Gen-Z friendly furnished housing provider, this one with an international flair.

The Sparkle: We like seeing operators try to segment the multifamily space, and several scrappy operators are specializing in the needs of more itinerant, less-stuff-having urban young professionals and digital nomads. Outpost Club is one example and 4Stay is a great example on the student side, and Node gets a nod given its European reach and padel courts, music rooms, tricked-out gyms and significant programming, often led by residents themselves.

People earning higher incomes pay progressively more as a percentage of their income, but how progressive is it? From what groups of workers does the government actually collect the most tax? Consider this: In 2022 52% of all tax returns come from households making less than $50,000 per year and they account for 3% of total tax revenue. On the flip side, one-third of all income tax revenue comes from the 0.5% of households filing returns showing more than $1 million of income.

Link: https://media.usafacts.org/m/1ff09cdff227021d/original/USAFacts_Taxes-EffectiveTaxRates_DES_05-27-2025.pdf

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