Single Tenant, Triple Net, NNN Retail – a Closer Look

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I’ve been discussing single tenant, net leased opportunities over many of  last few posts because I’ve been searching for several 1031 uplegs.  Every one of the buyers have been looking for exactly the same type of product.   I was contacted again last night regarding another one, but this time the individual wisely wants to do it as a reversed exchange because it will likely be more difficult finding an appropriate replacement property than it will be to sell his relinquished multi unit residential property.   He’s quite correct about that in this market.

Let’s get into this a little deeper.  Fast food restaurants do well in both good and bad economic times.  In good times, it’s simply to save time, hence the moniker – fast food.  In bad economic times, consumers switch to fast food from healthier foods due to cost.  When the economy is in a rough patch, the fast food sector remains stable. When budgets get tighter, families tend to make the adjustment from going out to a nice restaurant for a sit down meal to fast food. 

It makes perfect sense to be shopping in this segment, but what should a buyer be looking for and looking out for?  In a perfect world – single tenant of course, single parcel, S&P BBB or better credit, ten year or longer corporate lease, absolute net, which should mean no landlord responsibilities.   The single parcel will generally be an out parcel with an anchor behind.  In this type of development, although a single parcel, you generally will have cross or joint access easements for ingress egress.

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I want to stop here for a second because as I always tell my buyers – anything can be claimed in the leasing listing, but the devil is in the details.  I can’t tell you how very important it is to carefully, thoroughly read the lease or better yet have a good real estate attorney licensed in the state where the property is located, review the lease to make sure it says what you think or wish it does and that the terms are enforceable in that state.   

This applies mostly to multitenant, but in some states as is the case with Ohio, CAM charges have to be delineated item by item or they are not enforceable.  Regarding single tenant, the best situation is an absolute net lease where the tenant direct pays all the expenses and there’s no direct landlord involvement.

You’ll find properties listed on Loopnet or CoStar as NNN or triple net, but then you’ll read the lease and find that the landlord is responsible for roof, structure, HVAC and parking lot, etc. 

Hopefully, I said it loud enough – read the lease and have a good real estate attorney review it. 

Since this the hot product type in 2011, I’m going to do a mini-series over the next few posts on this type of product.