Triple-Net (NNN) Lease Information
What is a Triple-Net Lease?
A Triple Net Lease (NNN) is where the Owner (Leaser) of the property leases the property to a Leasee, who pays rent to the Owner (The Leaser) as well as all taxes, insurance and maintenance that arise from the use of the subject property. The Owner of a NNN investment is relieved of all management, expense, and landlord responsibilities.
What are Triple Net Leased Investments?
Many real estate investors become dissatisfied with the management problems associated with real estate investment ownership. In recent years, more and more investors are becoming familiar with the ease of owning commercial properties that are occupied by National Credit/Major Franchisee Tenants who are often credit rated, using the vehicle of a triple net long-term lease. The advantages with this format are that the tenant is obligated under this form of lease to pay for all expenses associated with the operation of the property including property taxes, maintenance, insurance etc. When this situation is combined with a National Credit Tenant, the investor can be assured of a management free property with a minimal level of risk. Companies such as Walgreens, Wal-Mart, Burger King, IHOP, Denny's, Rite Aid, CVS, Family Dollar, Dollar General, Taco Bell, Applebee's, Arby's, 7-Eleven, Inc., Sherwin Williams, and Winn-Dixie are typical types of tenants of NNN-leased investment properties that we provide for our clients and investors. These are known as Single Tenant Net Leases.
What kind of returns can an investor expect from these kinds of properties?
Returns depend on how you evaluate your investment. Capitalization Rates are the most common way to evaluate returns (take 1 years Income / Price) and they currently are averaging from 7% to 9% depending on credit risk, location and value of the income stream. Capitalization returns vary with the stock market, bond market, and other financial instruments. With the ups and downs of the stock market and the recent turmoil in residential housing, more and more investors are seeking refuge in Triple Net Leased Investment market. This increased demand, coupled with low interest rates, has driven cap rates down over the past 10 years. In general, the return on equity in a single tenant NNN property can potentially exceed that of a rental property by two to three times and sometimes even higher!
Viking International has been involved in hundreds of millions of dollars in transactions over the past 33 years as an advisor for our clients. We locate the properties, structure the transaction, write the offers, and see the transaction through to the closing while maximizing our clients existing underperforming equities.
We are very experienced in the Triple Net (NNN), and (NN) lease properties that are free of most landlord responsibilities. Although many types of corporate real estate are potential candidates, we prefer national companies such as: Mc Donald’s, Taco Bell, Burger King, Denny’s, IHOP, Seven- Eleven, AutoZone, EconoLube, CVS, Walgreens Drugs, Office Depot, Albertson’s (Drug and Grocery stores), KinderCare, Tutor-Time (child care), and certain Medical Office Buildings.
We show clients that most investors in Orange County are earning around a 2%-4% return with “current” equities in their investment property. You could be potentially earning anywhere from 6%-10% or more with alternative forms of investment real estate with no management, maintenance, taxes, insurance or hassles to you. The sale-leaseback of NNN properties often begins with companies recognizing that assets frozen in real estate are neither good for the balance sheet nor a productive utilization of expansion capital. Now more than ever, businesses have a need to convert existing real estate assets into cash and find cost-effective and efficient alternatives to funding acquisitions, special investment opportunities, construction of new facilities, and expansion of existing franchises.
Astute financial officers recognize this as an opportunity to enhance the corporate balance sheet by raising cash without the costly, time-consuming process of a new debt issue, and without any restrictive financial covenants. This corporate need provides you the opportunity to own a property where you lease to a National Credit Tenant that is corporate backed, or backed by a highly experienced and seasoned multiple franchisee owners.
Benefits of Triple Net Lease Opportunities:
- High return on Investment similar to bond investing with Real Estate as the security (6% -10%).
- Lower interest financing: With National tenants, lenders offer very favorable rate.
- Leases have rental increase built into the lease based CPI, Percentage, Cost of living, etc
- Renewal options & Flexible terms are part of the lease.
- You start with a new deductible depreciation basis that can be accelerated by using the cost segregation method of depreciation if so elected.
- No day to day management responsibilities.
- Generally more secure than rental unit ownership.
- No vacancy issues, national single user tenants.