Is your net lease portfolio prepared for a wave of tenant credit challenges?
2025 is shaping up to be a year of elevated credit risk for tenants across industries. The average risk of default for U.S. public companies surged to 9.2% at the end of 2024, the highest since the financial crisis, and is expected to stay high through 2025.
Bankruptcy filings in the U.S. increased by 13.1% year-over-year as of Q1 2025. That adds up to ~529,000 cases filed in the 12-month period ending March 31, 2025, compared to ~468,000 the prior year. The list of contributing factors is long and pressing: geopolitical tensions, interest rates, inflationary pressure, trade policy uncertainty, and tighter fiscal conditions all shape a macro backdrop that is increasingly hostile to vulnerable tenants.
Why this matters to Net Lease Investors
Unlike multi-tenant properties that can cushion risk through diversification, single-tenant net lease investments are heavily dependent on one factor: tenant solvency. If that tenant defaults, the income stream can vanish overnight.
Given the often-specialized nature of net lease assets, re-tenanting is rarely fast or inexpensive. Moreover, property-level costs don’t stop during vacancy. The implication? Tenant creditworthiness becomes the linchpin of cash flow predictability and capital preservation.
Raising the bar for Credit Oversight
In 2025, net lease investors should double down on credit oversight:
- Review financials regularly, not just at acquisition. – annual or even quarterly updates help detect inflection points early.
- Assess refinancing risk – companies facing large debt maturities in 2025/26 could be exposed to higher costs and tighter credit access.
- Understand sector-specific headwinds – not all tenants are impacted equally by macro shifts. Some industries are more rate-sensitive or consumer-exposed than others.
Don’t fly blind with Private Tenants
With many tenants being privately held or unrated, investors can’t rely on public credit ratings. That doesn’t mean you have to guess:
- Use alternative credit assessments that combine financial statement analysis, cash flow stress tests, leverage ratios, liquidity metrics, and business model resilience.
- Consider lease structuring tools to mitigate risk: springing guarantees, credit monitoring clauses, additional securities, or KPI-based covenants can provide downside protection.
Tenant credit risk isn’t static. It moves with markets, industries, and internal decisions made in boardrooms. Proactive investors that embed credit intelligence into their asset management strategy will be better positioned to protect yield and preserve asset value.
At Alphaporting, we specialize in credit risk intelligence tailored to net lease portfolios. If you’re not getting forward-looking insight into your tenant base, let’s talk.
