Many of these types of properties are typically single-tenant retail properties that are occupied by tenants with varying credit ratings on “net, net, net” terms, meaning the tenant is responsible for real estate taxes, insurance, and all maintenance. Many of the properties have high credit rated tenants with proven business models and many even have corporate guarantees. You also have the other end of the spectrum, including strip centers with a mix of small mom and pop shops and franchises that may or may not have a guarantee by the tenant.
Many real estate investors like triple-net-leased properties due to the ease of management, since the tenant takes care of all bills, maintenance and repairs. Many consider these investments to be equivalent to a bond, especially with a strong tenant with a long-term lease and a corporate guarantee. The current timing in the market could be ideal for Triple-Net assets as we are potentially heading into a bit of a slow down with the economy and the real estate market, and this asset class tends to hold its value better than most. I spoke with the George Pino, CEO of Commercial Brokers International, to get his thoughts on why now is a good time to be buying Triple-Net properties: “Now is a good time to take advantage of the low interest rates being offered for NNN properties. With current CAP rates, combined with low interest rates, we’ve been able to identify investments that can easily output a pre-tax seven percent cash flow, with a credit worthy tenant. This return, when combined with the tax benefits of real estate ownership, is outperforming almost every other passive investment alternative in the market.”
With the landscape of retail changing you will want to be sure to do your due diligence as well as have great representation as you seek out your investment properties as there are potential risks. The credit rating on the tenant can be tricky as not all credit ratings are equal, with credit ratings being determined by one of the three ratings firms (Standard & Poor’s, Moody’s, & Fitch), ratings of BBB- and higher (S&P scale) are considered “investment grade.”
Triple-Net can be great investments but just like any investment the due diligence and strong investment fundamentals are key, that and good representation!