Downsides of commercial property w/ single corporate tenant?

General Real Estate Investing
2yFollow

Downsides of commercial property w/ single corporate tenant?

Khaled Seirafi
Investor · Orange County, CA · Member since 2015 · 125 posts · 29 votes

I've only invested in multifamily and mixed use property. Curious about switching over to commercial with a existing corporate tenants with absolute NNN leases for min of 10 years left on lease. Tired of dealing with all the headaches of multifamily with measly returns.

But, I am concerned if a commercial property's lease is about to expire and the corporate tenant doesn't renew. Obviously, I'd be in a tough spot in that situation. But I'm also concerned about if one were needing to sell before or at expiration. You won't be able to really know what the market will be like at the time. Is there potential for a lot of loss in property value if in a mid-sized city with a healthy economy? 

0Reply
26 views

Most Popular Reply

Brock Mogensen
Real Estate Syndicator · Milwaukee, WI · Member since 2018 · 1k+ posts · 907 votes
2y

That is the downside of long term NNN leases..vacancies are tougher to fill/project.

The way to mitigate the risk is assume vacancy periods at the end of each lease. Talk with experienced leasing brokers in the area on demand for the space. Make sure the rents are in line with market. Build a strong relationship with the tenant. Get well ahead of any vacancy periods by consistently communicating with the tenant..these are just a few ways to mitigating risk on these deals.

2Reply
See this reply in the discussion

3 Replies

Jump to latestLatest
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    2y
    Quote from @Khaled Seirafi:

    I've only invested in multifamily and mixed use property. Curious about switching over to commercial with a existing corporate tenants with absolute NNN leases for min of 10 years left on lease. Tired of dealing with all the headaches of multifamily with measly returns.

    But, I am concerned if a commercial property's lease is about to expire and the corporate tenant doesn't renew. Obviously, I'd be in a tough spot in that situation. But I'm also concerned about if one were needing to sell before or at expiration. You won't be able to really know what the market will be like at the time. Is there potential for a lot of loss in property value if in a mid-sized city with a healthy economy? 


    Location Location Location for single tenant NNN lease. Yes if that lease is up for renewal and they do not renew, you could have a property sitting for a while, as well as a new tenant you may need to provide T&I for them as well.

    7e investments53 Reviews
    WebsiteView Page
    2Reply
  • Brock Mogensen
    Real Estate Syndicator · Milwaukee, WI · Member since 2018 · 1k+ posts · 907 votes
    2y

    That is the downside of long term NNN leases..vacancies are tougher to fill/project.

    The way to mitigate the risk is assume vacancy periods at the end of each lease. Talk with experienced leasing brokers in the area on demand for the space. Make sure the rents are in line with market. Build a strong relationship with the tenant. Get well ahead of any vacancy periods by consistently communicating with the tenant..these are just a few ways to mitigating risk on these deals.

    2Reply
  • John M.
    Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 801 votes
    2y

    I am an experienced STNL aka NNN investor who has a few of these assets, but most likely won't buy one again unless there was a significant upside. Rent increases are minimal and you are locked into it for a long time. Brokers who sell these never tell you the negative, but I've got some stories for you! At the very least make sure you are diversified in your real estate locations, tenant types, asset types, and MTNL's to offset the negatives of owning one STNL. Hit me up on the PM and I will tell you how I pivoted to other types of NNN assets.

    1Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free