To NNN or Not to NNN. That is the question.

2 Replies

So I have a vacant commercial space in San Mateo that I've been trying to lease out. Normally, I only do NNN leases for our commercial tenants. Now I know that with these uncertain times, it might be a stretch to hope for a tenant who'd be willing to sign a NNN lease. But if we were to sell the property (it's a mixed use building with two commercial spaces downstairs, the other commercial space is on a NNN lease), would it hurt its valuation if this space were leased out with a non-NNN lease? If I am able to get a tenant who'd sign a NNN lease (probably not going to happen, but let's just say hypothetically) and then I decide to sell, that will cause their share of the property taxes to at least double and perhaps triple overnight due to the property tax base reassessment. The other space is paying about $260 per month for property tax as it is. So, that would go up to $520 to $780. Not sure if it would be ethical for a new tenants to have them sign a NNN lease while we have the intention of selling.

Any thoughts?

Hi Kal. I am a Real Estate Broker in Texas. I am not licensed in California. I have been working in Commercial Real Estate for over 20 Years. My thoughts: I think it is great that you are evaluating your property for both the immediate and foreseeable future. Having an occupied property would of course show a much better evaluation based on income. If at this time it is a bit more difficult to obtain a NNN Tenant then maybe you can consider a different type of lease such as a Modified Gross Lease where the Tenant might pay some expenses and not others - maybe pay insurance and not taxes or another kind of variation. As the owner of the property, you can still be selective and choose the right tenant that may sign a longer term lease that would still make it attractive to a possible buyer if and when you decide to sell. Once the property is appraised of course value will be determined based on the current market. The good thing will be to have your space rented versus a vacant space. Good luck!

I think you should be flexible with your terms. Even if you end up paying for taxes, insurance etc  you look at the balance sheet at the end of the day to see if it makes sense or not.. I personally would avoid at all cost to pay any kind of maintenance..