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Quantifying the NNN Cap Rate Premium

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…

By Jonathan Hipp | Updated on March 13, 2015

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.

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