All About Triple Net Lease Investment
The single Tenant Triple Net Lease is typically a free standing building that is leased to a single business tenant for a long term, often 10-25 years. The term originally meant net of taxes, net of insurance, and net of maintenance – hence triple net terminology. According to the terms of absolute Triple Net Lease, the tenant is responsible for all property operating expenses, including insurance, taxes and all maintenance. NNN properties are made up of various classes like retail, office and industrial.
Triple Net Lease property 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 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 far away from their place of residence.
Triple Net Lease with commercial tenants are generally high quality business tenants and they usually have a vested business interest in making sure that a location is well maintained and attractive to customers. As a result, the tenant has an economic reason to enhance the real estate investor’s property over time, and frequently the tenant will make significant property improvements at their own expense to most Triple Net Lease property.
Single Tenant Triple Net Lease properties include Retail, Industrial and Office buildings. Major restaurant chains like McDonalds and Burger King operate under Triple Net Lease agreements typical of nnn properties. Retailers like Target and Home Depot, as well as specialty service centers like Jiffy Lube and Pep Boys, also belong to the long-term Triple Net Lease family. Industrial businesses like FedEx, distribution centers, and manufacturers operate under Triple Net Leases as well as medical offices and educational institutions enter into the arena of the Triple Net Lease.
How is the structure with Triple Net Lease different from other commercial leases?
Single tenant Triple Net Leases differ from other types of Triple Net Lease properties 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 pays the operating expenses and provides 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. Triple Net Lease Properties avoids these issues and provides safety without the hassle of the pre-mentioned responsibilities. Many NNN properties for sale nationwide that vary in size and price range.
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 Triple Net Lease Properties, is a passive one – effectively like “coupon clipping” in bond investments. Investors just go to their mailbox to collect a monthly rent payment.
An added investor benefit in Triple Net Lease Properties 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, the property in question 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 of these Triple Net Lease Properties.
A Triple Net Lease is generally structured in one of three ways:
- 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 just part of the family of Triple Net Lease Properties.
- Existing Property Sale: The sale of an existing nnn properties by a third party investor.
- 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 another example of Triple Net Lease Properties.
What is a Sale/Leaseback and why is it considered part of Triple Net Lease Properties?
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 NNN lease properties structure. 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. These entities become an integral part of Triple Net Lease Properties as well as NNN investment properties.
What are the primary benefits of a Triple Net Lease representative of the family of NNN Properties?
Triple Net Lease investments benefit investors and tenants alike. Tenants with nnn leased properties 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 maintenance and renovation costs. NNN properties offers unique qualities that simply other commercial properties don’t.
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 NNN Lease Property yet have zero on-site management responsibilities and no operating expenses.
Triple Net Lease Properties investment 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 Lease Properties 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.