Cap Rate on Triple Net Lease

1 Reply

Just throwing this out there. What would be the appropriate cap rate on a triple net lease, with a 10 year term, for a new construction 90% heavy equipment shop, 10% office space?

The building is located in a rural town of approximately 60,000 in the western US with a very strong micro-economy.

The tenant is a company that has been in business for >20 years, 700 employees, privately held, generating approximately $60 million in annual revenue; $6 million in net income. There's also no personal guarantee, but with that said, to what extent would a personal guarantee effect the cap rate on the value?

Hi Dean,

I counsel my clients against " One Economy towns". These rural type areas have maybe one or two major employers and if they go out it creates a domino effect.

You say it is a strong-micro economy which lends itself more to a suburban than a rural classification.

We look for rents at no more than 10% of sales for NNN and 5% is optimal. So based on if the company wanted to do a sale leaseback at 5% annual rent would be NNN 3,000,000.

An 8 cap would be a 34,000,000 ask price. The guarantee of a lease is huge to a lender if a buyer is not paying all cash. If you are talking the overall company over multiple location does 60 million in sales then that changes the whole dynamic and numbers.

If guarantee is parent company and they are rated BBB- or better it looks good to a lender. If it's a subsidiary it is not as strong for guarantee. If it's just that one location even weaker. If no personal guarantee and corp guarantee is weak the lender will require more than typical 25% down to curb risk. If lease guarantor is worth 200 million but his corp. is only guaranteeing then the lender has recourse only against the corp etc.

Are you trying to buy this property or is this your business you are wanting to sale lease back and take an accounting write down for??       

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