You may have heard the terms “triple-net property” or “net-leased” properties. This refers to the type of lease a commercial tenant enters into in a retail, industrial or office property. Triple net describes a type of tenancy in which the tenant pays not only rent, but also pays for three other major expenses associated with the lease; property taxes, insurance and common-area maintenance (or CAM as it’s referred to).
What this means is that the owner pays practically no operating cost except for a modest administrative fee, has little or no direct involvement with the management of the property, but gets a rent check every month, and depending on the length of the lease, may not even need to visit the property for years. The landlord does, however retain responsibility for the repair and maintenance of the roof & structure, although there are leases called “absolute net” leased under which the tenant is responsible for even those items as well, and in any case, are unlikely to need attention with newer properties.
The best type of triple-net, or Triple Net lease is with an investment-grade tenant, one whose financial strength is of the highest order, and presumable will never fail to pay rent even if they cease to operate at the property. They pay the lowest rent. A Walgreens for instance, is one of the most creditworthy tenants, while a small locally based mom & pop business would be at the low end. Walgreens rent per square foot would be the lowest, while at the other end, less creditworthy tenants pay the highest rent. The lower the risk, the lower the rent.The simplicity and lack of hands-on involvement required by the owner makes these attractive and they are ideal for the investor seeking real estate without putting additional money or time into the property.
The risk, particularly with the “Free standing, Single-tenant, Triple net” lease, is that under a worst case scenario, the tenant might go under and walk away, leaving the investor with a “dark” property and no income. As a hedge against that situation, choosing a property in a solid, dynamic rental area will enable you to re-tenant the property, although it might take months to do so. There again, the creditworthiness of the tenant comes into play. Walgreens might cease to operate a store, but they will always pay their rent whether the lights are on or off.
Investors who have spent years building up a portfolio of properties and decide to liquidate their holdings need to effectuate a tax-deferred exchange, to defer their gigantic capital gains and recapture tax liabilities. Having spent years with their sleeves rolled up, managing their properties, they seek to simplify their lives and turn to Triple Net properties as an ideal replacement properties. After selling off their portfolio, they replace them with quality Triple Net properties, thus insuring them a steady income stream, little or no management responsibilities, and their tax liabilities are deferred.
We can introduce you to an array of different Triple Net property types, from investment grade retail to office and industrial. When you’re ready to cash out the wealth you’ve built, but have no intention of giving it all to “Uncle Sam” call Kevin Gleason and let him give you some Triple Net investment options to consider. It will be well worth your time.