The View From 30,000 Feet
The net lease market in mid-2026 is a market of two speeds — and which one you're in depends almost entirely on what you own.
The macro backdrop hasn't made life easy for levered buyers. The Federal Reserve has held rates steady for several consecutive meetings, the 10-Year Treasury is hovering near 4.30–4.40%, and inflation concerns driven by energy prices have pushed markets to price in just one rate cut for the rest of 2026 — down from two expected at the start of the year. For anyone underwriting a deal with debt, the math is tight.
And yet the market hasn't cracked. Overall NNN cap rates barely moved in Q1 2026, compressing just one basis point to 6.80% despite the Treasury volatility. That decoupling from rate movements is worth paying attention to. It tells you something important: the NNN market is increasingly pricing credit and lease duration, not macro noise. The investors still transacting are largely cash buyers, 1031 exchange capital with hard deadlines, and family offices focused on income — not the leveraged institutional players who drove the last cycle.
The opportunity and the risk both live in the same place right now: the gap between premium assets and everything else has never been wider. That's the story of 2026 so far, and it shapes every section below.
Sector Spotlight: QSR (Quick Service Restaurants)
If you want to understand where the NNN market is pricing certainty, look at QSR ground leases. They remain the most aggressively priced assets in the entire net lease universe — and the spread between the top names and the rest of the category has become a real-time credit quality barometer.
McDonald's ground leases are trading at approximately 4.40% in Q1 2026. Chick-fil-A follows at 4.50%. Raising Cane's — a brand that didn't exist in most NNN investor conversations five years ago — is now printing at 5.00%. These are extraordinary numbers relative to where the broader market sits at 6.80%.
What's driving it? Three things converging: long initial lease terms (typically 15–20 years), corporate credit guarantees from parent companies with fortress balance sheets, and the fact that drive-thru-only and limited-footprint QSR formats have proven genuinely recession-resistant. When the economy wobbled in 2023 and 2024, people didn't stop buying $5 meals. That operational resilience has translated directly into cap rate compression.
The investor takeaway isn't necessarily to chase those cap rates — a 4.40% McDonald's ground lease is essentially a long-duration bond with a real estate tax wrapper. The real insight is what the spread tells you. When trophy QSR trades 240 basis points tighter than the overall NNN market, the market is telling you it will pay a significant premium for certainty. Understanding that pricing logic helps you evaluate everything else.
Tenant Watch: The Walgreens Story Gets More Complicated
If QSR illustrates what the market rewards, Walgreens illustrates what it punishes — and the lesson is sharper than most investors appreciate.
Consider two Q1 2026 closed transactions that nearly perfectly isolate tenant credit as the variable. A CVS property at $5.34M traded at a 6.50% cap with 12 years of remaining term. A comparably sized Walgreens property at $5.30M — nearly identical deal — traded at an 8.01% cap with the same 12 years remaining. That 151 basis point gap is the market's real-time verdict on the credit quality difference between two pharmacy tenants in the same buildings, in similar locations, on similar lease structures.
Why the gap? Walgreens was downgraded by S&P from BBB- to BB in 2024, then again to BB- in December 2024, pushing it below investment grade. The Sycamore Partners acquisition in 2025 added a private equity ownership layer that markets are still digesting. None of that changes the rent check showing up today — but it changes what happens if it doesn't show up tomorrow.
For existing Walgreens NNN owners, the key questions to be asking: What are your lease provisions if the tenant goes dark? What's the adaptive reuse potential of your specific building and location? Is your remaining lease term long enough to weather a hold, or does the clock create pressure?
For prospective buyers looking at Walgreens paper: the 372 basis point spread over 10-Year Treasuries is real yield. The question is whether you're being compensated enough for the credit risk you're absorbing. At 8.01%, some buyers think yes. Know which camp you're in before you sign.
The Number: 185 basis points
That's the current spread between a Dollar General NNN property (yielding ~7.15%) and a Dollar General corporate bond (yielding ~5.30%) as of Q1 2026.
Think about what that means. You can lend Dollar General money at 5.30% by buying their bond — liquid, no management, no real estate. Or you can own real estate backed by the same corporate guarantee at 7.15%. The 185 basis point premium exists because of structural advantages bonds can't offer: 100% bonus depreciation (permanently reinstated in 2025), depreciation deductions against ordinary income, 1031 exchange deferral, and long-term real estate appreciation.
That spread is the core analytical case for NNN investing in a single number. When someone asks you why they'd own a Dollar General building instead of a Dollar General bond, this is your answer.
Latticework Thought
Charlie Munger had a concept he called the lollapalooza effect — when multiple forces converge in the same direction, the result is not additive, it's multiplicative. Things get extreme fast.
The current NNN market bifurcation is a lollapalooza in reverse. For premium assets — long lease terms, strong credit, irreplaceable locations — multiple tailwinds are converging simultaneously: 100% bonus depreciation, 1031 exchange demand, cash buyer dominance, and scarcity of quality supply. The result isn't a modest pricing premium. It's a 240 basis point gap between McDonald's ground leases and the overall market.
For weaker assets, the same dynamic works in reverse. Shorter lease terms, credit uncertainty, secondary locations — each factor alone is manageable. Together, they compound into something much harder to sell and much harder to finance.
Munger's lesson for NNN investors: don't evaluate risk factors in isolation. The investor who looks at a Walgreens and says "the cap rate is good and the location is decent" is missing the lollapalooza. It's the combination of sub-investment-grade credit plus private equity ownership uncertainty plus sector headwinds plus adaptive reuse risk that creates the real exposure. Each factor alone is survivable. Together, they demand a much higher return threshold — or avoidance entirely.
Invert, always invert: don't just ask what makes this a good investment. Ask what would have to go wrong, and whether those things are correlated.
The Latticework Letter is published weekly. It is independent analysis — we have no brokerage relationships, no listings to push, and no financial products to sell. Our only interest is giving you a clearer picture of the market.
Forward this to someone who owns NNN assets and is tired of getting their intelligence from people with something to sell.
