Single tenant NNN properties are specialized properties leased to investment-grade tenants using long-term triple net (NNN) leases. The NNN refers to the triple net lease cost structure, which puts the onus on the tenant to pay (in addition to the rent) insurance, maintenance and property taxes, on the net leased property. However, these type of NNN investments have their peculiar risks.
Even if the tenant is investment grade, its holding company can set up a separate, subsidiary LLC with a similar name for the purpose of signing a NNN lease. Thus, if the tenant is an entity that has no assets, it shields even the biggest company from honoring a lease.
The more specialized a building is, the greater the amount the next tenant will expect the landlord to contribute in upfront tenant improvements. Typically, single tenant NNN net lease properties are designed and built to meet the requirements of a specific tenant. Re-leasing such a property to a different type of tenant can take a long time and cost a lot more than expected.
Further, single tenant triple net lease properties are either completely occupied, or completely vacant. With a single tenant, if the tenant’s holding company goes out of business or exits, the rent goes away and the NNN investor is left on the hook for the unpaid lease costs.
Landlords need plenty of time to plan single tenant NNN property tenant transition. Otherwise, they may be stuck with an unexpected and costly vacancy. Tenants that don’t wish to renew their lease should give plenty of notice since it is challenging and costly to find a long-term tenant.
Just because a national name is on the sign out front doesn’t mean that the company behind it is going to honor the rents. Even if the property is a “corporate store,” the lessee is typically a subsidiary LLC, and the parent company may not be guaranteeing rent. NNN single tenant investors need to make sure that if a tenant vacates before the end of the lease, there is an entity on the hook with deep pockets to continue paying the rent through end of term.
Even if a NNN property is located in a high traffic, metro, investors need to pay attention to the location. Single tenant deals are not location-agnostic propositions just because of an investment-grade tenant. Plus, even if there is no shortage of suitable tenants to come, single tenant buildings are built to tenant specifics and thus not cheaply transformed.
The value of a single tenant NNN triple net investment property is keenly tied to changes in interest rates. These properties are like bonds and as they mimic a series of fixed payments over a specified time-frame. On the flipside, just like a bond, when interest rates go up, the value of a single tenant NNN property weakens.
Your friends and advisors at the Triple Net Investment Group have deep, multiple decades-long experience in consummating single tenant, long-term deals, successfully. Call us today and see how and why our clients for single tenant NNN properties keep returning.