What is a Net Lease?
Net leased investment properties are typically occupied by a single tenant on a long-term lease (usually 10-20 year initial lease terms with options). The investor owns the land and building that is occupied by the tenant and the tenant is responsible for the maintenance, taxes and insurance expenses related to the property. The most desirable net leased investments are those that are occupied by national credit companies. The lease structure for these types of investments, typically offers rental increases on a consistent basis and lease renewal options for the tenant. The combination of stable and consistent cash flow, long-term security, minimal risk and little or no management responsibilities is very attractive to commercial real estate investors. Companies such as Jack In The Box, Inc., McDonald’s, Burger King, KFC/Taco Bell, Carl’s Jr./Hardee’s, Wendy’s/Arby’s, US Bank, Walgreens, CVS Starbucks and Autozone are examples of companies that sell their assets under a net leased investment scenario.
What is a NN Lease?
Double net leased investments are the least attractive type of net leased investment property. Under the double net lease, the tenant is responsible for the payment of property taxes, insurance and common area maintenance. However, the Landlord is responsible for the maintenance of the building structure, roof and parking lot. The Landlord responsibilities under the double net scenario can be extensive and have a negative effect on overall investment return. Therefore, it is important for an investor to include future expenses in their investment analysis assumptions and also plan on establishing a “reserve account” for future capital expenses.
What is a NNN Lease?
Absolute triple net leased investments are the most attractive type of net leased investment property. Under the absolute triple net lease, the tenant is 100% responsible for the payment of the operating expenses for the property including real estate taxes, insurance, common area maintenance, property management, and building maintenance and repair. The Landlord merely collects the rent and has no management, real estate tax or maintenance responsibilities.
Single Tenant vs Multi-tenant?
Single Tenant Absolute NNN leased investment is the most sought after commercial real estate investment primarily because there is NO required management of the property. The tenant is 100% responsible for everything. Multi-tenant NNN investment property requires the management of the common area elements of the property (CAM), ie, parking lot, landscaping, maintenance, real estate taxes/insurance pro-rations and monthly billing by the owner or management company. Multi-tenant NNN investment property typically pays a higher return for the ownership management of the property.