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Private investors, who do not have to adhere to rigid underwriting guidelines or acquisition criteria, have been nimble enough to fill those gaps. Net lease is a rare sector where REITs invest in small deal sizes, such as a $5 million fast-food outpost, which makes this possible. Meanwhile, more sophisticated, cash-rich pri- vate investors looking to put their money to work have filled in larger deal size gaps. As the market evolves and the net-lease sector undergoes both cyclical and fundamental shifts, Suffoletto expects private capital will continue to play a major role, especially at price points below $20 million. RETAIL AND INDUSTRIAL FOCUS Most net-lease deals targeted by private buyers are in the retail or industrial markets. In the first half of 2018, retail captured 42 percent of private buyers' transaction volume in deals under $20 million, about the same as indus- trial, which took 41 percent. "Private investors' willingness to pursue investment in all markets has a double benefit," says Suffoletto. "More properties fall into the sweet spot of their typical deal range, roughly $1 million to $20 million, providing more buy- ing opportunities and less competition from institutional buyers. "Despite shifts in the retail landscape due to e-commerce, the net lease market will remain steady and accessible to private investors look- ing for strong wealth creation and wealth pres- ervation options," says Suffoletto. INCREASED APPETITE FOR 1031 EXCHANGES Favorable market conditions are fueling inves- tor appetite for 1031 tax-deferred exchanges — across all sectors of real estate, according to Anna Barsky, vice president at IPX1031, a provider of qualified intermediary services. 1031 exchanges allow sellers of investment real estate to defer paying capital gains tax by reinvesting proceeds in a "like-kind" asset within a specific time period. Net-lease properties are particularly popular for private investors seeking 1031 exchanges because they tend to be steady, creditworthy, income-generating assets that require little hands-on management. Barsky's firm, which advises clients on exchange transactions, has seen 1031 exchange volume increase by nearly 20 percent from 2017 to 2018. She expects investor interest to remain high through the end of the year. "In a truly national marketplace, and at pric- ing levels where liquidity is widespread, this asset class will remain a viable alternative for pri- vate investors seeking simple and secure options to further diversify their portfolios, or to those looking to take advantage of 1031 exchanges," Suffoletto adds. This article was originally published on JLL Trends and Insights and can be accessed at this link: https://bit.ly/2z2QRhz Private investors' willingness to pursue investment in all markets has a double benefit. More properties fall into the sweet spot of their typical deal range, roughly $1 million to $20 million, providing more buying opportunities and less competition from institutional buyers. 50 REALASSETS ADVISER | D E C E M B E R 2 0 1 8