NNN Fee Simple acquisition ?

Question

How does the process work for a buyer/borrower acquiring a Fee Simple retail property that is advertised for sale via Fee Simple? I know that fee simple is the same as deeding a property to a family heir but this is not the case when the fee simple property is advertised for sale to the public is it? How does acquiring a NNN or ground lease fee simple differ from a "Motivated Seller" or "Seller Financed" retail property? What is the exact buying procedure? Thank you, Dan

Joel Owens · Answer

Dan terms are critical in the lease.

75 year lease - great.No increases,cancel at anytime,etc. - not so great.

You have to look at the building and land it sits on.What if this tenant vacates??

What rent are you getting now and what rent would you get from a second or third generational tenant??

If you are fixing to buy a NNN and it is coming up for renewal option soon after buying it go ahead and negotiate and make them commit early to renewing as a condition of purchasing.

This way the landlord can't dump a property say at 15 sq ft knowing the existing tenant is leaving or playing hard ball when the option comes up and then you re-lease it at 12 sq ft and overpay.

Kyle Meyers · Answer

And, yes, this should effect the appraised value. If you have a knowledgeable appraiser they will be able to look at the income of the property to determine the value, they may not factor it in if they use the sales comp or cost approaches, but you could be there to point out to them that those are not the best way to measure the value of this property.

Kyle Meyers · Answer

If your tenants have a 75 year lease, the rents will have a huge effect on the value. For example, say your tenants do not have rent increases built into the lease so the rent will stay the same for 75 years, once you are 30 years into the lease, it is likely market rents would have increased, but your rent income wouldn't. Your property would be held down in value by the lease because of the difference between the actual rents and the market rents.

Dan Krause · Answer

The rents have a large effect on what the property is worth? But appraised/assessed value is not relevant to the Net Operating Income (past, current and projected)is it? Thanks for your insightful information so far. Dan

Kyle Meyers · Answer

In that case, you need to really evaluate the lease and the tenant along with the property. The rents will have a large effect on what the property is worth. An illustration of the effect of the long term lease that I took a look at in one of my real estate classes is the Empire State building. Read this story to see how important the lease terms will be http://siteselection.com/ssinsider/bbdeal/bd020325.htm

Also, you will want to make sure the tenant is a good quality tenant because if they can't keep up the payments, that will change your returns.

Dan Krause · Answer

It is a NNN retail property (for sale) being sold Fee Simple with a 75 year (leased) tenant in place.

Kyle Meyers · Answer

Fee simple is complete ownership of a property. If it is leased you would be purchasing a leased fee interest in the property because your ownership is subject to the lease. NNN would mean the tenant pays the operating costs and capital expenses.

NNN Fee Simple acquisition ?

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