ExchangeRight Wins ‘Essential’ Bet

ExchangeRight Wins ‘Essential’ Bet
Joshua Ungerecht

Pasadena-based real estate investment firm ExchangeRight is carving out steady returns despite the pandemic-driven downturn.

The company invests in properties backed by what it calls “necessity” retail and health care tenants. These include food, pharmacy and discount retailers like CVS, Walgreens and Dollar General, as well as medical businesses like kidney dialysis centers.

ExchangeRight focuses on tenants looking to sign net leases, which minimizes investor involvement by making lessees responsible for property expenses such as taxes and upkeep.

The firm collected 100% of the rents due on its properties in April and is on track to do the same in May, according to the company.

More than 93% of ExchangeRight’s tenants have been designated as “essential businesses,” the company said, and have continued to operate during the pandemic.

Although the firm could not have anticipated Covid-19, the necessity-focused makeup of its portfolio is no happy accident.

“ExchangeRight was born out of the Great Recession,” said Joshua Ungerecht, the firm’s co-founder and managing partner.

In the early 2000s, Ungerecht and his partners oversaw a wide-ranging portfolio for Pasadena-based JRW Investments Inc., a real estate-focused wealth management business.

“We had exposure to every type of property under the sun,” Ungerecht said. “When the Great Recession hit, we had a front-row seat to how every single asset class performed nationwide.”

Ungerecht said he and his partners observed a consistent trend in the wake of the meltdown.

“Any of our clients who had invested in long-term net lease properties in the necessity retail and health care spaces were doing well,” Ungerecht said.

He and his partners decided to shift their clients’ portfolios into these recession-resistant sectors. When they met with limited success using third-party asset managers, according to Ungerecht, they decided to found ExchangeRight and source these deals themselves.

“Everything that we have done with ExchangeRight has been around how do you survive something as bad as the Great Recession,” Ungerecht said.

In addition to focusing on recession-resistant sectors, ExchangeRight also hedges its bets by selecting only tenants with investment-grade credit looking to sign long-term net leases, according to Ungerecht.

“If we have a 15-year lease,” he said, “we don’t have to know what’s happening two months from now.”

All of this meant that when Covid-19 hit, the firm’s portfolio was largely shielded from the turmoil.

Rather than hindering ExchangeRight’s business, Ungerecht said the downturn has actually increased demand for the company’s services.

The investment firm closed its latest fund in April. The $119 million net-leased portfolio was fully subscribed within two months of its February launch, making it the firm’s fastest capital raise to date, according to the founder.

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