Asking for expertise for a commercial property : national brand

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Asking for expertise for a commercial property : national brand

Aman Kaur
Member since 2019 · 21 posts · 2 votes

What should I look for if this deal makes sense ? Should I buy it ? What you think?

Single tenant National brand

Great location among many other national players

NNN lease

15 years term pending with further options

Asking price $9.5M

Trying to buy at 10% cap

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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
6y

Aman you said ( 15 years term pending with further options  Asking price $9.5M Trying to buy at 10% cap)

What is the cap rate at the ASKING PRICE??

Most NNN trades at no more than 10% off of the list price and many less than that or at asking price. It depends on a lot of factors.

I look at about 1,000 a week nationally for clients and I have not seen a 15 year lease for a 10 cap. Sometimes you will see a 9 cap but is a LEASEHOLD where you own the building but not the land. Very hard to finance and typically all cash purchases.

Have you bought NNN before? First we need to see if your expectations and market expectations are founded in reality before answering a ton of hypothetical questions.

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NNN Invest53 Reviews
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  • Priyanshu AdathakkarPro Member
    Realtor · Columbus, OH · Member since 2017 · 313 posts · 245 votes
    6y

    @Aman Kaur What is the specific location of the property? When you say NNN, is it absolute net or just NNN? Under some NNN leases roof and parking lot are not covered, have you seen the lease or are you going by their OM? To your question whether the deal makes sense, it depends on the actual lease terms! Also, have you looked at the property? Even national tenants are known to ignore maintenance. There are a lot of other questions I would have if I was looking at that property for a client. What looks good on paper might be a trap in real life.

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  • Loren Jacobs
    Investor · Bashaw, Alberta · Member since 2017 · 18 posts · 12 votes
    6y

    Hi Aman,

    When analyzing a commercial triple net lease deal a large part of your analysis is on the viability of the current tenant, which is, initially, not so intuitive.  Some of the questions you should be considering during your analysis of tenant viability are:

    - Financial viability - does the tenant have the ability to service the lease agreement now and for the remainder of the term? What are the chances of the tenant renewing their lease? Turnover with NNN can be detrimental.

    - Who and where is my tenants competition?  Is there any competition near by?  If not that could be good or bad, maybe the tenant didn't get the memo that this is a bad location for the demographic they serve, maybe not, either way this question deserves an investigation.  Is there too much competition?  Is the competition serving their demographic better than your tenant?

    - What are the chances of your tenant wanting to move locations?  Over the term of the lease has the sub-market changed?  Are your tenants demographic moving to or away from your sub-market?  Will your tenant need to grow and expand into a new location?

    These are some of the, not-so-talked-about, really important questions to analyze when looking at acquiring a NNN.

    0Reply
  • Ronald RohdePro Member
    Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
    6y

    Have you read the lease? It's the most important document for you, along with tenant credit. Not all national tenants are equal ...

    1Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    6y

    Aman you said ( 15 years term pending with further options  Asking price $9.5M Trying to buy at 10% cap)

    What is the cap rate at the ASKING PRICE??

    Most NNN trades at no more than 10% off of the list price and many less than that or at asking price. It depends on a lot of factors.

    I look at about 1,000 a week nationally for clients and I have not seen a 15 year lease for a 10 cap. Sometimes you will see a 9 cap but is a LEASEHOLD where you own the building but not the land. Very hard to finance and typically all cash purchases.

    Have you bought NNN before? First we need to see if your expectations and market expectations are founded in reality before answering a ton of hypothetical questions.

    Podcast Guest on Show #47
    NNN Invest53 Reviews
    WebsiteView Page
    1Reply
  • Aman Kaur
    OP
    Member since 2019 · 21 posts · 2 votes
    6y

    Yes, I plan to see the property ofcourse. The property itself is BJ's in upstate NY and has neighbors like Walmart, jcpenny , amc, kohls, mcdonalds, old nacy, home depot and other shopping plazas, etc. There are many in the vicinity. I have requested the official lease. currently the asking price is around 8%, i m trying to buy at 9.5-10%. The tenant is on a NNN lease and landlord is responsible for roof and structure. The building is pretty recent and roof was put in couple years ago along with new parking lot. Its a single tenant so just making sure i m minimizing my risks.

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  • Ronald RohdePro Member
    Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
    6y
    Originally posted by @Aman Kaur:

    Yes, I plan to see the property ofcourse. The property itself is BJ's in upstate NY and has neighbors like Walmart, jcpenny , amc, kohls, mcdonalds, old nacy, home depot and other shopping plazas, etc. There are many in the vicinity. I have requested the official lease. currently the asking price is around 8%, i m trying to buy at 9.5-10%. The tenant is on a NNN lease and landlord is responsible for roof and structure. The building is pretty recent and roof was put in couple years ago along with new parking lot. Its a single tenant so just making sure i m minimizing my risks.

    I don't think they will reduce price enough to get you to that cap rate. BJs has been around a long time, not sure how "upstate" it is, but population and job growth is stagnant for many towns in that area. 

    Also, are you under contract? I don't think they will give you the lease until then.

    0Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    6y

    Is this a brand NEW building ground up or an older building with a retrofit?

    They could say new roof and they simply put a new layer on top but underneath could need replacing down to the decking.

    On a  NN lease for a building of that size you could be talking millions of dollars of costs you are obligated for over time. If this is a brand new developer build it is HIGHLY unlikely they will sell for a 10 cap. The developer on a new property has not made hardly any cash flow on the property and likely has to pay short term capital gains, legal fees, real estate commissions on the sale of the property.

    Usually a seller will not give you a lease until you have been vetted as a credible buyer and at the least have a signed LOI with a confidentiality component. If not that a signed (non-disclosure agreement). You might find you might not need a 10 cap at all if tenant is credit and lenders will give a great rate on it.

    At this point it sounds like you are going into a potentially large purchase price property and your knowledge level of STNL might not be at the comfort level you would like. At the very least you need an experienced commercial retail broker or also a commercial retail attorney to help out.

    Have you gotten a soft quote for debt with a capital markets mortgage broker and modeled out a return scenario over a 10 to 15 year hold?

    Good luck  

    Podcast Guest on Show #47
    NNN Invest53 Reviews
    WebsiteView Page
    1Reply
  • Aman Kaur
    OP
    Member since 2019 · 21 posts · 2 votes
    6y

    Joel - Thank you for the advise and pieces of information for me to think about.  I was thinking about the overall picture and its too big of a decision for me to make at this point.  Maybe down the line.  Thank you. 

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