Tenant Case Studies: Is it Possible to Ensure Long-Term Stability in DST Investments

Investors in Delaware Statutory Trusts (DSTs) often look for ways to ensure long-term stability, as the nature of real estate investing inherently involves risks. Questions about tenant strength, property durability, and market dynamics are common among those considering DSTs. Can long-term stability be guaranteed in these investments? While no investment is without risk, the careful selection of both property and tenant plays a critical role in enhancing stability. 

CAI Investments, with its meticulous approach to property and tenant selection, offers an example of how these decisions can significantly mitigate risk, as illustrated by their Lake Forest Global HQ DST.

Understanding the Importance of Property Selection in DST Investments

Criteria for Stability

When considering DST investments, the property itself forms the foundation for stability. Key factors include location, property type, and the demand in the local market. A property in a prime location, serving a consistent or growing market, has a higher likelihood of long-term success. Class A properties, which often feature modern designs, extensive amenities, and strong market demand, offer a stable platform for investors seeking durable income streams. Beyond physical characteristics, the financial health and contractual details of the lease also play a major role in sustaining value over time.

CAI’s Approach to Property Selection

CAI Investments has long prioritized stability in its asset selection process, using a strategic method to identify high-potential properties in prime locations. Their approach includes analyzing market dynamics, property characteristics, and tenant reliability. A crucial factor in this selection process is the ability to secure long-term, absolute triple-net (NNN) leases with creditworthy tenants. In this structure, tenants bear most of the operational expenses, further reducing the risk to investors. The result is a portfolio of carefully selected assets that are primed for longevity.

Case Study: Lake Forest Global HQ DST

Property Overview

The Lake Forest Global HQ DST is an exemplary asset in CAI’s portfolio, offering an excellent case study of how extensive property selection can lead to stability. Located in Conway Park, a prestigious business hub just outside Chicago, this Class A property spans approximately 225,000 square feet. It includes several top-tier amenities, such as an atrium lobby, corporate training facilities, boardrooms, a fitness center, and a 275-seat cafeteria. The property also boasts covered parking for 826 vehicles, walking paths, and shuttle services, making it an ideal location for corporate headquarters.

Strategic Location

Lake Forest’s location is an integral part of its appeal. Situated 30 minutes from Chicago O’Hare International Airport, the property offers easy access to one of the country’s most significant transportation hubs. Its proximity to major corporations—including multiple Fortune 500 companies—further enhances its attractiveness. The 25-year history of high occupancy rates in Conway Park is a testament to the area’s demand and stability as a corporate center.

Tenant Profile: Pactiv, LLC

Pactiv’s Strength as a Tenant

A property is only as stable as the tenant occupying it. For the Lake Forest Global HQ, CAI secured Pactiv, LLC, a global leader in the packaging and food service industry. Pactiv’s headquarters serves as the operational base for its extensive network of over 50 manufacturing and distribution facilities, generating significant revenue globally. Pactiv’s parent company, Pactiv Evergreen, Inc. (NASDAQ: PTVE), is a publicly traded company with an established presence in the global marketplace and an S&P credit rating of B+, further assuring investors of its financial strength.

Pactiv, with approximately 12,000 employees and a strong portfolio of blue-chip clients, is not just a reliable tenant but a critical player in an essential industry. The company manufactures a wide range of packaging products for supermarkets, restaurants, and food processors, making it a vital link in the global supply chain. The ongoing demand for food packaging adds another layer of security for investors in the Lake Forest DST.

Selecting a financially stable, creditworthy tenant is fundamental to ensuring long-term stability in DST investments. A tenant like Pactiv, with a robust financial profile and a key role in a critical industry, provides a foundation of stability. 

Lease Details

In the Lake Forest Global HQ DST, Pactiv’s 12-year absolute NNN lease creates further security. It includes built-in annual rent increases of 2% and two five-year renewal options at market rates. This helps ensure both a predictable income stream and the potential for increasing returns over time. 

The lease is backed by Pactiv Evergreen, Inc., which guarantees the lease, adding another level of financial security for investors. These types of lease agreements, where the tenant assumes responsibility for property expenses such as maintenance, insurance, and taxes, are instrumental in reducing risk and maximizing net income for investors.

Summary

The key to enhancing long-term stability in DST investments lies in the careful selection of both property and tenant. CAI Investments’ Lake Forest Global HQ DST serves as a model of how a well-chosen property, located in a high-demand area and leased to a financially stable tenant, can provide investors with a robust and stable income stream. Pactiv’s strong financial position, combined with a long-term lease that includes built-in rent increases and renewal options, further underscores the property’s stability.

While no investment can eliminate risk, the strategic selection of properties and tenants by experienced sponsors like CAI Investments can significantly enhance the security of DST investments. For investment advisors, evaluating the quality of property and tenant selection is crucial when choosing DST sponsors and offerings for their clients. CAI Investments, with its proven approach to property and tenant selection, stands as a reliable partner in this effort.

When evaluating DST opportunities, investment advisors must look beyond surface-level factors and deeply assess the quality of both property and tenant. CAI Investments, with its focus on securing prime properties and stable, creditworthy tenants, offers an excellent example of how to help your clients achieve long-term stability in their DST investments.