For years, the 1031 exchange has been the tax strategy behind much of the private net lease market. Glen Kunofsky thinks another provision now deserves first place.
Kunofsky, founder and CEO of the net lease platform Surmount, said on a guest episode of The TreppWire Podcast that permanent 100% bonus depreciation has transformed the sector. Trepp released the episode Nov. 3. Kunofsky said properties that qualify for bonus depreciation now stand as their own asset class within net lease and that for many investors the benefit is more powerful than a 1031 exchange.
That claim carries weight. Kunofsky has spent about three decades in net lease and completed more than $50 billion in transactions. The timing matters too. He said demand in the private market has softened as rising interest rates opened a gap between buyers and sellers in the 1031 market and fewer investors are entering exchanges. Bonus depreciation gives those buyers another reason to act.
A Tax Break He Lobbied To Restore
Kunofsky dates the shift to 2017, when the Tax Cuts and Jobs Act first brought 100% bonus depreciation into play. He describes himself as someone who stays out of politics, but he lobbied actively during the debate over the One Big Beautiful Bill Act to get bonus depreciation back to 100%.
That bill, as Lonnie Hendry, chief product officer at Trepp, put it on the episode, locked in the deduction. Kunofsky said having it permanently in the tax code changed the market. Surmount, he said, has helped build the market for bonus-eligible net lease assets, and he counts the firm among the leading experts in the field.
Why He Ranks It Above A 1031
The 1031 has long been a familiar part of net lease. Kunofsky estimates that exchange buyers make up 20% to 30% of private-market transactions and those buyers face a deadline: once they sell, they have to buy. Bonus depreciation, he argued, gives investors more flexibility and a bigger payoff over time.
"Bonus depreciation is more powerful than 1031," Kunofsky said. "If you think about it, you're deferring higher taxable rate income. You can do it every single year, and it can be a huge wealth creator."
The difference is how often you can use the benefit. An exchange is tied to a specific sale. Bonus depreciation can be applied year after year against income taxed at higher rates, which turns a tax strategy into a recurring part of portfolio planning.
Gas Stations And Car Washes Lead The Way
The deals Kunofsky describes are concentrated in specific property types. Surmount is active in automotive service and car washes. He also pointed to gas stations, saying those with more than 50% of their sales from fuel can be bonus depreciated.
That puts tenants such as 7-Eleven and Circle K at the center of the trend. Both are signing long-term leases and providing the sales reporting that supports the treatment, according to Kunofsky. An investor can buy one of those properties and depreciate everything except the land.
He gave an example. If land accounts for 10% to 20% of the value, a $5 million purchase can produce about $4 million of losses in the first year. The investor can use those losses to offset other income. Kunofsky called the result very powerful.
The net lease structure helps. With the tenant covering most expenses, including taxes and property maintenance, Kunofsky said owners get stable, predictable income. Combine that predictability with a large first-year deduction and it's easy to see why these assets draw strong interest.
From Family Offices To Institutional Funds
Kunofsky sees the biggest opportunity among owners who already hold large real estate portfolios. Many family offices and individual investors own commercial real estate that has been fully depreciated, so the income from it no longer has tax shelter.
"You have huge amounts of fully depreciated commercial real estate held by family offices, held by private individuals, and they're paying full freight taxes," he said. "You can invest in bonus-eligible assets and offset that income, and then reinvest. It's hugely powerful."
Kunofsky said the after-tax benefit is a major reason family offices are buying net lease. Their deal sizes vary widely: some buy $5 million properties, while others buy $300 million or $400 million of property, or as much as $1 billion.
The strategy is not limited to direct ownership. Kunofsky said Surmount works on between $4 billion and $10 billion a year of net lease fund business. That includes advising large institutional funds that pass bonus depreciation through to their investors, so investors can now get the benefit at the fund level as well as by owning properties outright.
He also said the deduction has changed how developers think about risk. A one-time loss up front makes it easier to justify new development and take on projects that might otherwise not make sense. The bonus depreciation market, he said, now has both an institutional side and a private side and Surmount works in both.
Kunofsky expects the market to keep growing as more investors learn about it. He predicts that as owners talk with their CPAs and work out what bonus depreciation could do for their portfolios, the market will grow 10% to 20% a year.
