Single tenant triple net leased properties (NNN) trade at a premium relative to similar properties with so called double-net (NN) leases. NN leases typically require the landlord to retain some responsibility for the roof, structure or some other aspect of the property. Being the most passive real estate investment available, however, NNN properties require virtually no involvement of the landlord. This increases the demand by expanding the universe of potential buyers to include many Buyers' seeking hands off investments who might otherwise not consider real estate at all.
Since the tenant is responsible for structural and roof repairs in a true triple net lease, the landlord enjoys more certainty that unanticipated repairs won't reduce future cash flow. In effect, the risk for these items is transferred away from the owner, for which the market charges more of a premium; this being reflected in a lower cap rate.
Below is an illustration of the kind of cap rate premium that we observe for NNN vs NN properties after controlling for tenant, lease term remaining, and when sold.
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While the value of each property is unique and impacted by many variables, on average most properties that are otherwise similar trade at a premium for having NNN leases. The premium varies by property type, most likely reflecting differences in the ages of the underlying properties.
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Jonathan Hipp
Jonathan Hipp began his career in real estate over 25 years ago. In his early years as a broker, he ventured into the net lease industry and quickly began leading the US net lease market, closing over $3 billion in transactions. In 2005, Jon founded Calkain Companies, a company focused solely on net lease investment services. As President and CEO, he has been instrumental in building the firm into one of the leading Net Lease real estate companies, transacting over $12 billion of net lease deal volume over the past 13 years. He has expanded Calkain’s services to include brokerage, advisory, asset management, capital markets, and industry research. He has become a well-known resource, panelist, and speaker at various Net Lease and Industry conferences and is a regular contributor to GlobeSt.com on real estate trends. In June 2015, Jon’s passion for the real estate business was again recognized as he was nominated for the Top Real Estate Player in the DC area by SmartCEO magazine.
