Deciding on a Triple Net Lease Investment

By Randolph T. Mason, CCIM, SIOR Partner, Commercial Realty Specialists: There are several things to keep in mind when considering a triple net lease investment.

Have you ever thought that purchasing a NNN lease was as simple as purchasing a bond? Well, think again. There are many things to consider when purchasing this type of investment vehicle.

While it may seem like a straightforward investment, it’s important that the investor understands what he or she is buying. Generally, you are buying the net cash flow that the lease provides. That’s why it’s so important to really understand the underlining lease. There are many definitions of Triple net leases, so make sure the specific investment works for you.

Is the lease a “Bond Lease”, where the occupying tenant is actually fully responsible for all of the operating expenses; including the building maintenance, repairs and replacements for the entire building and site? Is it a “NNN Lease,” which is similar to a  bond lease, except that capital expenditures paid for by the tenant are generally limited? With this lease the tenant is usually liable for all of the properties operating expenses.

There is the “NN Lease”, where the landlord is responsible for the structural components of the property such as the roof, load bearing walls & foundation. Finally, there is the Modified Gross or Modified Net lease. In this lease, the rental amount usually includes the properties’ taxes, maintenance & insurance. The tenant is responsible for its own utilities and interior cleaning.

After understanding the specific lease that the occupying tenant has signed, it’s critical to understand who the tenant is. Will this tenant be able to continue paying its rent for the entire lease term? What is the long term outlook for this tenant’s industry in this location? Is his or her industry being sent off shore? There are many questions to consider.

Then there is the specific piece of real estate.  That is, after all the “tangible” you are purchasing. Is it a tenant specific type of property, or can other tenants occupy the real estate should the current occupant vacate the property?

Finally, who will be managing the investment? Questions always come up and there needs to be someone there to answer the questions, take care of the issues, and generally look after your real estate.

As you can see, there are many things to consider and when done thoughtfully, methodically, and wisely, a Triple Net Property can be a sound investment.