Elevated volatility in financial markets and a slowing economy are leading some investors to consider net lease investments. These investments are known for providing long-term cash flows with fixed increases, especially in sectors that tend to be less affected by economic cycles.
However, the current environment also brings higher credit risk for certain tenants. Some may find it difficult to manage increased input costs due to tariffs. This situation makes it important for investors to evaluate not only the tenant’s credit but also the underlying real estate’s residual value when assessing net lease opportunities.
Tony Charles of Morgan Stanley Real Estate Investing (MSREI) stated, “It is critical that investors truly understand the residual value of the underlying real estate in addition to the credit of the tenant in assessing the attractiveness of a net lease investment.”
The document outlines several risks associated with alternative investments. It notes that historical performance does not guarantee future results and highlights that these investments can be highly speculative and illiquid. Investors may face restrictions on redemptions or transfers, and there is no secondary market for private funds. The use of leverage and other speculative practices can increase both volatility and potential losses.
Morgan Stanley Investment Management (MSIM) advises financial intermediaries to ensure any information provided is suitable for recipients based on their circumstances. The firm states it will not be liable for any reliance placed on this material.
Regarding ESG strategies, the material points out that incorporating environmental, social, and governance factors may cause investment performance to differ from broader benchmarks if such sectors fall out of favor with the market. There is no assurance these strategies will lead to better outcomes.
Real estate investments themselves carry risks similar to direct property ownership, including sensitivity to management skills and changes in tax laws.
The views expressed are those of Tony Charles as of August 28, 2025, and may change depending on market or economic conditions. They do not necessarily reflect all opinions within Morgan Stanley Investment Management or its affiliates.
This communication is intended solely for persons whom Morgan Stanley reasonably believes are permitted recipients under applicable law. It should not be forwarded without consent from the firm and is not meant as advice or a recommendation regarding specific securities or investment strategies.
For more detailed information and disclosures, readers are directed to consult the article’s full PDF.