The Role of Single-Tenant Properties in Diversifying Your Investment Portfolio

Diversification Is Evolving: Why Investors Are Rethinking Traditional Strategies

Diversification has always been a core principle of sound investing. But today, with public markets more interconnected than ever, traditional diversification methods—like mixing stocks, bonds, and mutual funds—may not provide the risk mitigation they once did.

That’s where single-tenant real estate, particularly through Delaware Statutory Trusts (DSTs), may offer a new layer of portfolio balance. Especially when those properties are Manufacturing Essential Assets (MEAs)—facilities leased to tenants that perform critical economic functions.

This article explores how these real estate assets may serve as a potential diversification tool, especially for investors seeking income stability, inflation sensitivity, and low operational complexity.

Why Diversification Still Matters in a World of Correlated Risk

During periods of economic volatility, many traditional asset classes—stocks, bonds, and even some alternatives—tend to move together. This phenomenon, known as correlated risk, can undermine diversification efforts.

Single-tenant properties leased to mission-critical tenants may offer a lower correlation to public markets. They don’t rise and fall with the stock market in the same way equities might. In this sense, they represent a non-correlated income stream, which may help reduce overall portfolio risk.

What makes them potentially attractive from a diversification standpoint?

• • Predictable lease-backed income
• • Minimal tenant turnover
• • Stability derived from essential, long-duration business operations

Benefits of Single-Tenant Assets for Portfolio Diversification

1. Income Predictability Through Long-Term Leases

Many single-tenant properties are leased for 10+ years, often including inflation-linked rent escalations. These leases are typically structured as triple net (NNN) or bondable, meaning the tenant, not the investor, is responsible for most, if not all, of the property’s operating expenses.

This setup may offer:

• • Greater visibility into future income
• • Lower variability in operating costs
• • A passive experience for the investor
  

For those seeking more reliable income in uncertain markets, this predictability may play a meaningful role.

2. Exposure to Defensive, Non-Cyclical Tenants

These tenants often fall into the non-cyclical or defensive category. Many of them have remained operational through economic downturns, potentially providing a resilient income stream even during broader market disruptions.

3. Operational Simplicity = Scalable Diversification

Managing a multi-tenant office or retail building can be complex, coordinating leases, managing shared spaces, responding to maintenance issues. With single-tenant real estate, complexity is significantly reduced.

DST investors, in particular, may benefit from:

• • No day-to-day management responsibility
  • Institutional-grade real estate exposure
  • Diversification without the administrative burden
  

This simplicity allows investors to scale their real estate exposure without scaling their workload.

4. Tangible Asset Backing + Potential Tax Benefits

Real estate is a hard asset, which may serve as a hedge against inflation. When held in a DST structure, it may also provide tax advantages, including:

• • Depreciation deductions
  •1031 exchange eligibility, deferring capital gains taxes when structured correctly

These potential benefits add another layer to the diversification appeal.

Risks and Considerations to Weigh

1. Tenant Concentration Risk

By definition, a single-tenant property depends entirely on one occupant. If that tenant vacates or defaults, the entire property may go vacant—along with the income stream.

How CAI addresses this:

• •  Targeting creditworthy tenants with strong operating histories
  •  Focusing on mission-critical facilities with high replacement costs
  •  Prioritizing essential industries likely to withstand economic downturns

Still, tenant risk remains a key consideration—and should be factored into any investment analysis.

2. Geographic and Sector Concentration

CAI’s MEA strategy includes:

• •  Identifying properties in logistics-focused, secondary markets
  •  Favoring regions with infrastructure growth and economic development
  •  Diversifying across tenants, industries, and geographic footprints

3. Re-Leasing and Exit Strategy Planning

Even long-term leases come to an end. That’s why it’s important to evaluate:

• • Renewal likelihood
  • Building adaptability for future tenants
  • Local leasing market strength
  

DSTs, in particular, require careful sponsor selection. Investors should understand how the asset is expected to be managed—and eventually exited—before committing capital.

Integrating Single-Tenant DSTs into a Broader Portfolio

More high-net-worth investors and advisors are exploring DSTs as a complement to traditional portfolios. These assets may be especially relevant in scenarios like:

• • 1031 exchanges seeking deferral of capital gains
  • Income-oriented portfolios requiring a consistent yield
  • Inflation-sensitive allocations needing real asset exposure

Rather than replacing equities or bonds, single-tenant DSTs can serve as a supplemental layer of diversification, bringing potential income, simplicity, and stability into the mix.

Closing Takeaways: The Case for Strategic Simplicity

In an era of financial complexity, single-tenant real estate offers something rare: strategic simplicity. With the right structure and sponsor, these properties may serve as a stable, low-touch complement to a diversified portfolio.

Here’s what investors should keep in mind:

• • Long-term leases may provide predictable income, but tenant quality is key
  • Simplicity doesn’t mean risk-free—due diligence still matters
  • Diversification across tenant, sector, and geography remains essential

CAI Investments’ focus on Manufacturing Essential Assets (MEAs) provides a path to institutional-quality real estate through DSTs, designed to balance potential returns with thoughtful risk management.