Question about Triple Net Valuation on rent increase

[Edward Alicante]

Hi BP!

Does anyone know how absolute triple net property valuation work? 

I know there's probably a lot of variables like sqft comps, the tenant, cap rate, etc. but to keep it simple lets say you have a property that's worth $5m that has a 20 year lease with a Starbuck tenant.  10% rent increase every 5 years.  Since its an Absolute Triple Net, there's going to be no expense increase, etc.  So is there a formula for the property valuation when the 5year - 10% increase hit?  Or will this just be all based on appreciation or Starbucks (Tenant) financials ?

Thanks!

 

[Joel Owens]

Starbucks not 20 year lease. Most 10 years. Very few absolute NNN these days. Most are NN with roof warranty. Lately Starbucks has tried to write in parking lot and a bunch of other items that they reimburse for. Problem with that is people buy NNN to be HANDS OFF. They are willing to accept lower returns to do that. When they have to do all of this crap per the lease even if tenant pays for it then they are taking on management.

People that have millions to tens of millions of dollars value THEIR TIME. They do not want to be bothered with such things. If they did they would buy active real estate assets that produce more yield for the work involved. So as a property owner you have to fight back against those requests from a tenant or fill up the space with a different tenant that is not going to demand that to do a lease.

Certain price ranges say 4 million and up less cash buyer than 3 million and below. There are a ton of factors that go into buying NNN properties and one is a persons financials and what their goals are today and long term. Owning NNN is simple. Evaluating it and buying the right property is more complex than people think.