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Triple Net Investment Sales

The Marketplace 8.00% CAP | 268,022 SF | FLAGSTAFF, AZ

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Asking Price:$24,970,000 

Property Type Retail Tenancy Multi Square Footage 268,022 Price/Sq Ft $93.16

Cap Rate 8.00% Occupancy 100% NOI $1,996,911 Year Built 2007 Lot Size (acres) 28.89

Lee Commercial is  pleased to offer for sale the leasehold interest in the Marketplace (the "Property"), 268,022-square-foot dominant community center in a highly growing area of Flagstaff. The center features a mix of industry leading daily-needs, home improvement and discount retailers including Home Depot, Petco, Cost Plus World Market, Best Buy, Marshall's, Bealls, Tuesday Morning and Old Navy. About 85% of these tenants have been in the center for 10 years, demonstrating retailer commitment and strength of the trade area. Besides the existing center, there are also three (3) developable outparcels including in the offering, which provides value-add opportunity. From a tax perspective, the favorable long-term ground lease with the state of Arizona allows the investor 100% depreciation on the investment.  

Walgreens 5.15% CAP | 14,675 SF | RALEIGH, NC

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Asking Price: $7,784,600 

Property Type Retail

Lease Type Absolute NNN

Tenant Credit Credit Rated

Tenancy Single   Lease Term 20 years

Lease Commencement 11/20/2015

Lease Expiration 11/30/2035

Remaining Term 17.7 years

Square Footage 14,675 Price/Sq Ft $530.47

Cap Rate 5.15% NOI $400,902 Year Built 2015

Lot Size (acres) 1.64 Parking (spaces) 50 

Rite Aid 6.25% CAP | 14,578 SF | BUTLER, PA

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Asking Price: $6,005,000

Property Type Retail Lease Type NNN

Tenant Credit Credit Rated, Corporate Guarantee

Tenancy Single Lease Term 20 years

Lease Commencement 02/01/2017

Lease Expiration 01/31/2037 Remaining Term 18.9 years

Square Footage 14,578 Price/Sq Ft $411.92

Cap Rate 6.25% Occupancy 100% NOI $375,309 Year Built 2017

Permitted Zoning Commercial Lot Size (acres) 2.97

Rent Bumps10% Years 11-20

Lease Options Six, 5-Year Ownership Fee Simple

CVS Pharmacy Zero Cash Flow 6.67% CAP | 14,000 SF | WAUKESHA, WI

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Asking Price: $5,123,755 

Property Type Retail Investment Type Net Lease Lease Type NNN Lease Term 25.1 years

Lease Commencement 12/22/2009 Lease Expiration 01/31/2035

Remaining Term 16.9 years Square Footage 14,000 Price/Sq Ft $365.98

Cap Rate 6.67% NOI $341,919 Lot Size (acres) 1.58

Rent Bumps 101% of FMV for first 2 Options, then FMV Lease Options Ten, Five-Year Options

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Walgreens 5.75% CAP | 13,886 SF | ALBUQUERQUE, NM


Asking Price: $5,033,426 

Property Type Retail Lease Type Absolute NNN

Tenant Credit Credit Rated, Corporate Guarantee

Lease Term 25 years Remaining Term 9.4 years Lease 07/30/2002-07/31/2027

Square Footage 13,886 Price/Sq Ft $362.48 Cap Rate 5.75% NOI $289,422

Year Built 2001 Lot Size (acres) 1.3 Lease Options 10 , 5 Years

Rite Aid 8.00% CAP | 11,202 SF | GIRARD, OH

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Asking Price: $2,597,720 

Property Type Retail

Investment Type Net Lease Lease Type Absolute NNN

Tenant Credit Credit Rated Tenancy Single

Square Footage 11,202 Price/Sq Ft $231.90

Cap Rate 8.00% NOI $207,818 Year Built 1999

Triple Net Property Listings

Staples at Aliso Viejo Town Center Aliso Viejo, CA

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Price:$6,502,740 Cap Rate:4.75% 

Building SF:14,625 SF Lot Size:2.41 Acres

Year Built:1996 (Ren 2016)Status:Available 

Kentucky Fried Chicken | Outparcel to Safeway Anchored Center Pinetop-Lakeside, AZ

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Five Below New NNN Lease Aliso Viejo, CA

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Price:$6,080,580 Cap Rate:4.75% Building SF:8,887 SF Lot Size:2.41 Acres Year Built:1996 / Renovated 2015 Status:Available 

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Wendy's Availability

City              State        Rent                 CAP            Price

Eastpointe  MI      $150,000             5.5%      $2,727.273

Moeeow      GA     $124,000             5.5%      $2,254.545

Jacksonville Beach FL $90,000     5.2%      $1,730.769

Paw Paw      MI        $110,000           5.95%    $ 1,848,739

Detroit         MI        $115,000             5.5%      $2,090,909

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 PRICE REDUCTION -24 Hour Walmart Neighborhood Market | Serving Clemson University | Unparalleled Location | 18 Years Remaining

Price $13,960,577 l 5.20% CAP l Rent $725,950

Kohl’s | Phenomenal Location | 12 Miles from Downtown Pittsburgh | Next to Monroeville Mall (1.4+ Million SF)

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Price $16,034,483 CAP Rate: 7.25% Rent $ 1,162,500

*Kohl's Recently Extended Their Lease Term Showing Commitment to the site. 12 Miles from Downtown Pittsburgh

*Percentage Rent of 2% on Sales over $20 Million

* 4,Five-Year Tenant Reneal Options Remaining. *$93,000 Rental increases in Each Option Period. Kohl's-Currently Operates Over 1,100 Locations-NYSE:KSS

Brand New 2017 Construction-Just Listed Effingham,IL

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Price $2,683'745 8 CAP:5% 8 Rent:$134,187

* Long Term Absolute Triple Net (NNN) Lease, Passive Investment

*Zero Landlord Responsibilites

*Brand New 15-Year Lease Commencing upon the Close of Escrow

* Rental Increases of 8% Every 5 Years

* Strategically Situated at the Confluence of Major Throughfares I-57 & I-70

Panera has been one of the most successful restaurant companies in history.

* Pioneer in Advanced Technology

BJ'S WHOLESALE CLUB AND GAS FACILITY 108,510 SF | Franklin, MA

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Asking Price $18,800,000

Property Type: Retail Sub Type: Single-TenantI nvestment Type:Net Lease

Square Footage108,510 Price/Sq Ft $173.26 Occupancy100% IN-PLACE NOI $1,128,630 

CVS 5.00% CAP | 10,125 SF | Richmond, VA

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MCDONALD’S 4.25% CAP | 3,409 SF | Lansing, MI

TD Bank + Additional Pad Site Forked River, NJ

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RENT: $386,352 l PRICE; 7,175,000 CAP Rate: 5.4% Over $175,000.000 Deposits. 36% Increase In Deposits in 5 Years.

Large 2.11 Acre Lot Features Pad Site with 4,650Sq.Ft. Retail Develoment Potential

Chick Fil a Ground Lease SAN ANTONIO, TX 78201 Offering Price: $3,465,000 % Cap Rate: 3.75%

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NOI $130,000 INCREASES EVERY 5 YEARS LEASE TYPE GROUND CURRENT TERM 20 YEARS LEASE COMMENCEMENT 5/1/2018* LEASE EXPIRATION 4/30/2038* REMAINING TERM 20 YEARS OPTIONS 8 - 5 YEAR OPTIONS OPTION TO PURCHASE YES YEAR BUILT 2018 GROSS LEASABLE AREA TBD LAND AREA 1.598 ACRES ROOF & STRUCTURE TENANT GUARANTOR CORPORATE 

PNC Bank | Easton, PA

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 Price: $1,333,000 

Cap Rate: 6.00%  Square Footage:2,500 SF Lease Type: NN  Term Remaining: 5 Years 

 PROPERTY HIGHLIGHTS

  • LONG-TERM TENANT
    Long-term tenant at this location since 2003 
  • COMMITMENT TO SITE
    Tenant has exercised its 3, 5 year option 
  • RENTAL INCREASE
    6.68% rental increase in 2018

CVS PHARMACYMISSION HILLS‚ CA‚ UNITED STATES

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A free standing retail building with drive-thru leased on a NNN basis to CVS Pharmacy with ±9.…
SIZE 13,200 sq ftTYPE Retail -NNN 

Free Standing Retail PRICE $9,168,000 Cap Rate:3.30% Excellent 1031 Exchange Property:•CVS corporate absolute NNN lease - zero landlord responsibilities•±9.5 years remaining on initial 25 year lease term•Built in rent increases - 10% increase on 04/15/2022 and 5% increases x each 5-yr. option (6)•Fee simple ownership (land & bldg.) - tax benefit potential with depreciation of improvements 

Our Courtesy of Partners

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10 Mistakes of Commercial Real Estate Investors

1. Ignoring local market conditions

There are two levels of due diligence required to evaluate a real estate investment--the market and the property. And of the two, local market conditions are more important. A great property in a bad market can be a big loser. Analyzing the demographic trends of population growth, income, and employment in the local market will tell you where opportunity lies, or not. Those conditions will make or break your investment. Investing in an area with declining demographic trends is destined for trouble.

2. Inadequate property due diligence

The second level of due diligence is the property condition, including physical items such as building systems, environmental matters and structural components, and intangible items such as title, zoning and land-use regulations. Approach the property like an open book exam. If you don't know the answer to a question, find an expert who does know to give it to you. Get accurate estimates from professionals of what it will cost to fix what is wrong. The time spent on due diligence is minimal and can save thousands of dollars in unexpected repairs.

3. Fudging the math

Real estate is a numbers game. Value is dependent on net operating income—gross revenue minus operating expenses. It is critical to get the real operating numbers, not a projection of potential gross income and estimated expenses. You’ll need to confirm and verify every element of income and expense. Value the property based only on actual income, not projected income. If you overestimate revenue and underestimate expenses, your profits will suffer or turn into a loss. Risk increases with every assumption made. Do not assume you can save expenses by cutting corners or that you can raise rents the day after you take possession.

4. Over-Leverage

Borrowing too much money is often fatal. Highly leveraged deals do happen, but unless it's backed up by a solid plan with sufficient capital, it can be disastrous. Using 100% financing for entry level deals is like believing gravity doesn't exist as you jump off a building. You can argue all you want, but you're going to hit the ground—the only question is how hard. The proper use of positive leverage can significantly enhance your profits, but it’s important that it is a function of the deal structure and a thought-out investment strategy.

5. Failure to have an investment plan

An investment plan incorporates all of the due diligence findings and takes into account the possible outcomes of the investment, best case to worst case. Ask yourself why you think you can do a better job running this property than the seller did. If you can't answer that with specifics, you won't do better, and probably not as well. Your plan should answer the questions of how the property will be managed; what improvements are needed and their cost; how much money might be made (or lost); how long it will take and how to get out if things go wrong.

6. Failure to mind the balance sheet

There are four ways to make money in real estate: cash flow, appreciation, equity growth, and tax benefits. The operating statement shows just one of those--the cash flow. The balance sheet shows the other three. Just as one adjusts rents and expenses to improve operating performance, the balance sheet should be managed to best utilize the assets.

7. Bad deals and bad partners

You are not going to be right every time. You’re going to wind up with properties that don't perform as expected, or that the market direction moved against, or ones you just don't like. Learn to spot a losing position quickly and get out. A deal that goes sour on several fronts at once is a candidate for the "learning experience" pile. Sometimes the problem may not be the property, but the people. When problems arise in partnerships, especially those that started as friendships, things can get sticky and uncomfortable. If your partners are driving you crazy, exercise a little civility and be willing to call it over. If a good buy/sell arrangement was not included in your partnership agreement, make your own. Close the deal quickly and move on. Life’s too short.

8. Over-reaching

Swinging for the bleachers in high-risk, home-run-type deals that require more capital or expertise than you have is a sure recipe for disappointment, frustration, and can end in disaster. It takes hard work and perseverance to achieve success in any field, and real estate is no different. As you increase your knowledge and capacity, the big deals will come, and you'll know you're ready when you automatically focus on the pitfalls before the rewards.

9. "Dirt-rich, Cash-poor"

This refers to the situation of having more land than cash and is a common outcome for an investor who accumulates a bunch of properties that have nothing in common but their owner. If you have multiple properties and are using the gains from some to cover losses in others and losing the battle, it's time to get off the treadmill. Identify improvements that you can make immediately and do them. Dump losers and anything that has needs that can't be funded in the next year. Then focus your energy and resources on creating maximum value in the remaining properties that fit your big-picture investment goals.

10. Not using local market knowledge

You read the national media and magazines and think you’ve got a sense of what the "market" is doing. But in reality, all real estate is local. The value of your property – or your investment - is determined by local market conditions - rental rates, occupancy levels, competitive space supply, demographic trends, etc. By collecting a few local demographic statistics (job growth, population growth and income), you can get ahead of the curve.


Do It Right: Due Diligence

Investors new to the world of commercial investment real estate may be salivating at the thought of a market filled with undervalued properties that can be had for a song. Do yourself a favor and inject a little reality into your dreams of market domination. Remember that distressed properties are called distressed for a reason: Although the term may fit the seller’s frame of mind and circumstance, buyers should realize that such properties often have tenancy and deferred maintenance problems. Fully occupied, class A assets rarely come on the market -- even if the owner has financial problems. And if they do, well, take a number and join the other buyers who are probably willing to offer the asking price, if not more.

While today’s market offers plenty of opportunities in distressed properties, buyers must conduct in-depth due diligence to determine what a property is worth. Before clients agree to a purchase price they think reflects a property’s distressed condition, review this checklist of items to consider along with an appreciation of what can happen once the acquisition has closed.

Due Diligence Checklist

Tenants. Review and confirm the terms of all leases, paying particular attention to co-tenancy clauses, which are common in retail properties. These allow retailers to reduce the base rent, eliminate base rent and pay percentage rent based on sales, or terminate a lease when an anchor tenant or another identified tenant exits the property. Other items to take note of include “early outs,” which permit tenants to terminate leases in advance of normal termination dates, downsizing rights that allow tenants to reduce the size of the leased premises, tenant bankruptcies, and claims by a tenant against the landlord.  Require estoppel certificates from each tenant. This item usually is subject to negotiation between the seller and buyer as to the number of estoppel certificates required and, if less than all, from which tenants (anchors, occupants of more than a certain number of square feet). It also will indicate whether the seller is in default.

Existing Indebtedness.  Buyers may be able to assume an existing mortgage or other debt, but they should expect that lenders may re-underwrite the terms, which may result in higher debt service, a shortened maturity, and increases in the real estate taxes, insurance, or tenant improvements impound or escrow accounts. In addition buyers must pay an assumption fee and the debt holder’s counsel fees and costs. As a condition to assumption, lenders may insist on a guarantee of all or a portion of the indebtedness.   At the same time, buyers can negotiate deferring interest payments, principal or both; reduction in the principal amount of the debt based upon the value of the property; a change in the interest rate; and reductions in the real estate tax, insurance and/or tenant improvement impound or escrow accounts.

Appraisal.  Value the property using comparable recent sales, replacement costs, and capitalization of income methods. In the current economy, the first and last of the three methods may not be completely reliable as to value. With few recent sales of commercial properties other than foreclosures, relying on comparable sales is questionable, while the lack of activity has resulted in uncertainty as to the interest rate to be used in the capitalization of income method.  

Physical Condition. Confirm the property’s repair and maintenance needs, both long term and near term, as well as estimates of these costs. There may be a difference between what the seller thinks is necessary and the associated costs and what the engineer thinks is necessary.  

Violations of Laws. To obtain proper assurances that the property is fully compliant with applicable laws, codes, and regulations, including zoning and subdivision ordinances, contact the local governing bodies with jurisdiction over the property. If the property is not compliant, find out from local officials if the violation must be fixed in advance of closing and ask the engineer what it will cost.

Environmental. A current phase 1 environmental site assessment is a requisite to a commercial real estate acquisition. If the inspection reveals environmental problems, a phase 2 assessment may be required. Existing and prospective environmental remediation plans must be taken into account, in terms of time frame and costs. An environmental expert can assist on both of these items.  

Title and Survey. Does the seller have the financial ability to satisfy all of the liens and judgments that the buyer does not intend to assume? In addition, covenants and operating agreements with third parties regarding access and maintenance of common areas must be carefully reviewed and the terms confirmed, particularly regarding who bears the cost of maintenance and repairs. Also, obtain estoppel certificates from third parties indicating that there is no default on the seller’s part.

Litigation. Does the seller have the ability to settle existing litigation that could delay the closing or result in a new judgment lien filed prior to closing?

Service Contracts. Is the seller current in payment and is each contractor willing to continue providing the agreed to services on the same terms and conditions following closing?

Management. Will the buyer manage the property or hire a third-party management company? Consider engaging the management company currently handling the property to continue, even if the company is owned by the seller. Determine general management and lease-up fees, owner termination rights, and controls over rent receipts and the use thereof by the manager.  

Bonus advice: Use Bremner Real Estate, a Buyer Representative, For Your Investment

If you use a conventional broker who represents sellers, you’re accepting a built-in conflict of interest. Will he show you all the available properties, or only his listings, or those in his office? A Buyer Agent will save you money, help you avoid problems, show you all the available properties, and look after your interests, not the sellers.

Reducing Your Tax Burden by Owning Real Estate

With real estate, there are tax advantages available while both owning and selling real estate. Let’s first discuss the advantages available during the course of real estate ownership:
Mortgage Interest Expense
The government allows all of the interest associated with the financing of the property to be written off as an expense of owning the property. For many real estate investors, especially those with interest only loans, this expense deduction can be substantial.
Depreciation
Depreciation is a method for matching the costs of acquiring property over the properties estimated economic life. The IRS now requires that most properties be depreciated using the straight-line method of depreciation (27.5 years for residential properties, 39 years for commercial properties). Depreciation will act as an intangible expense and will shelter income from taxes.
Expense Deductions
Many of the costs associated with owning and managing a real estate investment, such as management fees and insurance premiums, are deductible. One deductible expense worthy of note is the travel expense. Many real estate investors acquire real estate in places they like to (or have to) visit, and each time they travel to the property, the travel costs are a deductible expense. Not a bad deal if the property happens to be in Maui, or around the corner from a relative.
Passive Losses
Due to depreciation and expense deductions, it is possible to own a property that is producing positive cash flow, but for tax purposes showing a loss. These “passive losses” are subject to certain restrictions, but in many circumstances can be used to offset passive income from another investment. In the event an investor qualifies as a "full time real estate professional" passive losses can be used to offset ordinary income. Full time real estate agents should have no problem qualifying for maximum passive loss benefits.

There are also specific tax breaks available when selling real estate. The tax breaks available depend on the type of real estate sold. If a primary residence is sold, Section 121 of the Internal Revenue Code allows the seller to avoid paying capital gains taxes. If an investment property is sold, Section 1031 of the Internal Revenue Code allows the seller to deferthe payment of capital gains taxes. Both sections of the tax code merit further discussion:
Section 121
Upon the sale of a primary residence a taxpayer can avoid paying capital gains taxes on the first $250K of gain if single, or the first $500K of gain if married. The seller(s) must have owned and lived in the home as their primary residence for two out of the past five years.
Section 1031
Upon the sale of an investment property a taxpayer can defer the payment of capital gains taxes. In order for the entire tax liability to be deferred, the taxpayer will need to reinvest all of the sale proceeds and purchase a property of equal or greater value. The new property must be acquired within 180 days.
Many investors can use both Section 121 and Section 1031 together for maximum tax advantage. An example would be an investor who conducts a 1031 Exchange into a rental home. After establishing the property as a rental for two years, the investor moves into the property. Once the property is established as a primary residence, taxes can be avoided on the sale via Section 121.

  “Triple-Net”  also known as “NNN”properties are typically single-tenant retail properties leased to credit tenants. The Net, Net, Net (NNN) term refers to the tenant being responsible for real estate taxes, insurance and all maintenance costs in addition to the negotiated rent. NNN properties are popular among investors because there are no management responsibilities, stable cash flow and standard real estate tax benefits.As with any investment, there are many factors to consider when investing in NNN properties. Below are a few:

  • Location – Market strength, local trends, demographics, traffic counts, accessibility, ability to re-tenant if tenant vacates, etc.
  • Tenant – Credit rating, financial strength, store sales, industry sector, competition, etc.
  • Lease Terms – Length of lease, guarantees, rent bumps, out clauses, renewal options, etc.
  • Building – Age, condition, construction type, size, land size, etc.

Another important factor to consider when investing in NNN properties is financing options. Lenders often look at the same factors as an investor (location, tenant strength, lease terms, etc) in addition to their overall exposure (percentage of loans) with that tenant. Each lender’s appetite for a specific tenant varies greatly. It is highly recommended that you work with an experienced commercial loan banker/broker when considering the purchase of a NNN property.Through our relationships with CMBS lenders, CTL lenders, life insurance companies, banks and private investment groups, United Financial can help you secure a loan for the acquisition or refinancing of NNN properties located throughout the United States. Whether you’re seeking a fully amortizing loan, a 10 year fixed loan or an interest-only loan, we can help you secure financing that best suits your needs.Advantages of United Financial’s NNN loan finance program include:

  • LTV’s up to 95% on NNN loans
  • NNN loan terms up to 25 years
  • Flexible NNN loan amortization terms
  • Non-recourse NNN loans
  • Potential for assumable financing

All About Triple Net (NNN) Leased Property Investments

Single Tenant NNN properties are typically free standing buildings that are leased to a single business tenant for a long term, often 10-25 years. Triple Net (NNN) originally meant net of taxes, net of insurance, and net of maintenance – hence triple net. According to the terms of an absolute triple-net lease, the tenant is responsible for all property operating expenses, including insurance, taxes and internal and external maintenance.

NNN properties offer the benefit of little or no management responsibilities, as the tenant pays for most, if not all, of the expenses depending on the terms of the lease. The investor receives the rent with little to no other involvement. With an absolute triple net lease, the tenant is responsible for all expenses, making this a true passive investment for the owner, and allows an investor to buy property farther afield from his home.

Triple net lease commercial tenants are generally high quality business tenants and they usually have a vested business interest in seeing that a location is well maintained and attractive to customers. As a result, the tenant has an economic incentive to enhance the real estate investor's property over time, and frequently the tenant will make significant property improvements at their own expense.

Single Tenant NNN Properties include Retail, Industrial and Office buildings. Major restaurant chains like Burger King and Taco Bell operate under triple net lease agreements. Retailers like Toys R Us and Home Depot, as well as specialty service centers like Jiffy Lube and Pep Boys, also sign on for long-term triple net lease agreements. Industrial businesses like FedEx, distribution centers, and manufacturers operate under triple net leases. Medical Offices, R&D Facilities, and Educational Institutions are also frequently triple net leased properties.

How is the lease in a Triple Net Lease Property different from other types of leases?

Single tenant triple net leases differ from other types of leases in two important ways – 1) the numbers of tenants, and 2) the tenant’s responsibilities.

Most other commercial property investments - such as office buildings, apartments and retail properties - have multiple tenants, and the real estate owner must pay the operating expenses and provide on-site management. The owner takes care of leasing out individual units for short terms, renovates the premises as necessary, collects the rent, pays the property taxes, maintains the property, and is responsible for all insurance, legal, accounting and other expenses. This is often costly and painstaking work, which is eliminated under a single tenant triple net lease.

In a single tenant triple net lease agreement, a corporate and/or individual tenant agrees to be responsible for all of the expenses associated with the ownership of the property in return for a long term lease. The investor/owner’s role in a triple net lease is thus a passive one – effectively like “coupon clipping” in bond investments. The investor’s “job” is merely to collect the regular lease payments.

An added investor benefit in a triple net lease can be property improvement over the term of the triple net lease. Conscientious, credit-worthy corporate tenants usually improve the appearance and functionality of their leasehold in order to be more successful with their clients or customers. As a result, their leasehold is well maintained, and may even appreciate in price as a result of improvements, which would represent an additional return to the investor at the time of sale.

A triple net lease deal is generally structured in one of three ways:

1) Sale/Leaseback: A sale and leaseback financing is structured through the sale of a property owned by a strong business. The business/tenant sells the property to an investor, and leases it back on a long-term triple net lease.

2) Build-to-Suit: A developer enters into a long-term agreement with a corporate tenant, builds the facility to the tenant’s specifications, and then sells the property with the new NNN lease upon completion of the development or before.

3) Existing Property Sale: The sale of an existing triple net leased property by a third party investor.

What is a Sale/Leaseback?

A sale/leaseback is when a business sells its commercial property for current market value and then leases it back from the buyer, typically using an absolute triple net lease. The seller retains the use of their real estate and frees up capital which can be used to invest back into the business. Real estate sale/leasebacks are popular with business owners because they generate capital for immediate use within the business, and create a predictable rent that is deductible for federal and state income tax purposes. At the same time they are popular with real estate investors because they create a long term lease with a quality tenant on an absolute triple net lease.

What are the primary benefits of a Triple Net Lease investment?

Triple Net Lease investments benefit investors and tenants alike. Tenants with a Triple Net lease enjoy the security of a long term lease at favorable pricing, and control over the property in which their business is housed, as well as control of subsequent maintenance and renovation costs.

Investors similarly enjoy the security of the long term Triple Net lease, and the high cash return on their passive investment, as they own the property yet have zero on-site management responsibilities and no operating expenses.

Triple Net Lease investments are also flexible and offer additional upside, as at any time the investor can cash-out, most often with a profit, by selling the property, as the value of the real estate frequently appreciates during the lease term. The investor also can hold the property, allow it to further appreciate in market value, and lease it again at a higher rate to the original tenant or a new tenant when the lease term expires.

Finally, Triple Net investments are also relatively easy and safe for investors to engage in, as they are hassle-free transactions with minimal costs, and present a minimal risk with strong tenants and long leases. An investor can also choose an opportunity for higher cash returns by taking on less than investment grade tenants.

How are NNN Properties Valued?

NNN Properties typically are valued using their Capitalization Rate, also referred to as a Cap Rate. Cap Rates are a simple way to compare the value of a stream of economic benefits in a given property. Generally this is computed as a pretax cap rate using the property’s Net Operating Income (NOI).

A property’s NOI is the property’s gross income less all expenses (except debt service). In an absolute triple net lease, the annual rent is the same as the NOI. The Cap Rate is simply the NOI divided by the purchase price.

For example: if the purchase price is $1,000,000, and the NOI is $100,000 per year, then the cap rate is $100,000 divided by $1,000,000 = 10% Cap Rate

Some of the major considerations when determining what the cap rate ought to be on a particular building are:

  • The credit worthiness of the tenant.
  • The length of the lease – longer is usually better
  • Type and frequency of bumps or increases in rent.
  • Strength of the demographics of the property location
  • Nature of the improvements. Are the improvements easily converted for another tenant or are they special purpose that would require significant expense and time to convert before re tenanting?
  • Age and condition of the improvements
  • The Location of the property

The more positive the above factors are, the lower the Cap Rate should be, and the higher the value of the property. Conversely, if the above factors are weak, the Cap Rate will be higher, and the resulting value will be lower.

It is important to remember that markets are not perfect and low cap rate properties are not necessary a lower risk investment - they could simply be a bad investment that is over priced. Astute investors seek NNN Properties that are priced in their favor, with a higher cap rate for a property that has low risk factors.

Types of Net Leases

1) Absolute Triple Net (NNN): The tenant pays all operating expenses, including maintenance, repairs, taxes and replacement for the entire property, without limitation. The owners pay the mortgage only.

2) Triple Net Lease (NNN): Similar to absolute NNN leases but with additional owner responsibilities. The owner is generally liable for the structural components of the building such as the roof, foundation, load-bearing walls and parking. Leases will vary from deal to deal, so the actual lease on a property must be carefully read as part of the investment due diligence.

3) Other Net Leases (NN, N): These are leases which provide that the tenant pays two, or one, of the net lease components (Taxes, Insurance, Maintenance). So, for example, a double net lease might be one in which the tenant pays for taxes and maintenance, but not insurance. It is necessary to review the actual language of the specific lease to determine who pays what.

Types of Properties

Triple Net Lease investments are available for all types of existing or build-to-suit real estate, including:

• Service Centers • Office Buildings
• Fast Food Restaurants • Distribution Centers and Warehouses
• Industrial Facilities • Retail Stores
• Educational Buildings; • Health Care Facilities etc. etc.

Who Buys NNN Properties?

NNN Properties are appealing to those who wish to invest in commercial real estate investments with relatively low risk, solid long term income sheltered by depreciation, good capital gains and little to no management responsibility. At any time the investor can cash-out, often with a profit, by selling the property. The investor also can hold the property, allow it to further appreciate in market value, and lease it again at a higher rate to the original tenant or a new tenant when the lease term expires.

Summary of Investor Benefits

1. Security of both the tenant and the real estate

2. Hassle-free transaction with minimal costs

3. Substantial cash return on a passive investment

4. Property depreciation shelters a portion of the annual cash return from taxes

5. The value of the real estate appreciates during the term of the lease

6. Minimal risk with investment grade tenants

7. Opportunities for higher returns from regional and individual tenants

8. Investor owns property with zero on-site management responsibilities

9. Tenant pays property insurance, maintenance, improvements, and taxes