NNNN - triple net Networking

8 Replies

After cracking the code on traditional single family rentals, I would like to expand and network with NNN investors ... next investment I do is going to be different than the last 30 Residential rental properties in my portfolio. I am specifically interested in acquiring cash a single tenant commercial building that is Vacant (or close to be vacant), add value by renting it to a good credit tenant (ideally with corporate guarantee) and then sell or cash out finance it at a higher value.... with the idea that NNN properties should be almost management free once rented. I also would consider any NNN property where seller is distressed and is looking for quick cash deal. I am sure as everything in life it is easier said than done. It took me many years to master a large residential portfolio only to find out how much day - day involvement is needed even with the best property managers if your residential portfolio is large enough.

I truly enjoy customized complex deal making more than day to day operations so am looking to expand in NNN type deals that Probably fit the part of real estate what I enjoy the most.

Anyone out there that has some experience on NNN deals that wants to network for future mutual benefit relationship?

A triple net lease (triple-Net or nnn) is a lease agreement on a property where the tenant or lessee agrees to pay all real estate taxes, building insurance, and maintenance (the three "nets") on the property in addition to any normal fees that are expected under the agreement (rent, utilities, etc.).... which means means that is a lot less hands on for the landlord....  it is almost exclusively used in commercial real estate, almost never for residential  ... and as any commercial transaction  it takes more time/effort to find (Good) tenant. Not sure though what you mean with O love NNN.

Sorry, that should read "I live NNN".

Do you understand that one of the biggest reasons NNN is such a nice REI is you don't need to deal with vacant properties, and you don't need to deal with rehab, and you don't need to deal with finding tenants. What you should be looking for are NNN that are already filled with tenants, NNN leases already in place, guaranteed by the parent corporations.

Not sure I agree... buying a NNN property with a corporate guarantee tenant is the easy way... which everyone wants... and therefore is costly. I can buy it, but that's it... I can't get my money back quick.

The same building vacant (or with lease expiring) is much cheaper. I would like my next deal to be a vacant single tenant building where I find the tenant. I buy low because is vacant, my team (and I) hussles to get a good tenant, once secured the tenant the building is worth a lot more. I can then cash out refinance, get back through my cash out money I put in and enjoy years of hands off additional cash flow while I use cash out refinance to repeat. Similar to the BRRRR strategy, but a with A LOT less day-day management of maintenance, evictions etc... I like BRRRR, but would like to move away from heavy management of a mass of tenants losing their job, toilet leaks, section 8 red tape etc etc. I do realize that the strategy I would like to work in will include a ton of hard work (ie. cold call corporations, talk with local franchise owners etc. etc.) to get a tenant (not as easy as to put a property for rent on the MLS).... but it might be much more of a fit for me than constantly increasing Single Family Home portfolio.

Back to my initial question... who is in the BP Community out there that does this today?

@Joe Villeneuve I think what he's getting at is he wants higher than a 4-7% return on a tenanted asset which is understandable.

@Paolo R. I would suggest you find an active CRE broker in your market - one who specializes in retail. Generally these guys are already running around with a handful of developers to whom they bring deals but if you can squeeze your way in you may have an opportunity to develop a site for a credit tenant but don't think for a second that a broker that's worth anything isn't going to know 10x more than you and likely has already developed properties themselves. Buying a house you might be able to force your way into a deal by way of CASH but in CRE it's all about relationships. We represent over 140 National and Regional tenants in my office as well as a handful of preferred developers for each Tenant. You're not going to be able to walk into a CRE office one day and ask for a piece of dirt and a Starbucks deal.

I am under the impression that it can take 12-18 months(or longer) to re-tenant a commercial property.

Also, if the property is vacant, doesn't that mean the location demographics didn't support last tenants lease payment and cost of doing business at that location?

I am curious about STNL and MTNL for all the reasons you mention and I prefer the long vacancy in one big clump and then 10,15,20,50 years of uninterrupted corporate guaranteed mailbox money and some basic bookkeeping.

It will interesting to see what some of the pros say.

Best of luck!

@Paolo R. usually a vacant STNL is due to a significant problem with that location, or the Corp itself. Try talking to former owners of sears, toysrus, etc first. Next you really need to understand what is a value add opportunity vs a white elephant. And most of the legit deals are circulated within the local CRE community to those with money, connections and experience. I think the skills learned in BRRRR of SFH generally do not transfer well to what is an entirely different animal. What you have built with SFH's could quickly vaporize, and you'll end up with a POS property that you can't rent out. Maybe start small. A strip mall with middling tenants that can get cosmetically revamped and also add some destination corp tenants like the ubiquitous Starbucks. Of course a MTNL is not nearly as hands off, especially with a cadre of mom and pops in there. But given your background and experience, I think the notion of finding an empty and off market big box and somehow re-tenanting it with a class A Corp entails a lot more dope smoking than I would be willing to entertain;)

I’ll pass the bong over to @Joel Owens  maybe he can chime in with his perspective. 

I talked to Paolo awhile back. He is a nice guy. From the call he is wanting value add turn around deals that developers and people like me go after.

I told him and I tell others if someone is wanting to do find them a deal for 500k where they get 500k upside and I get a broker commission of 15,000 on the purchase price it's not worth my time. That is why I only do those deals myself or I syndicate them as a sponsor. Any other way it provides me a low return so I do not work on those in that capacity. That is also why I do not focus on property management or broker tenant lease representation. Now if someone is buying a 3 to 4 million value add where I can make close to 100k commission then I do not mind them making a bigger return so much as I have a good minimum payoff for my time just on the commission alone.

So it's all relative. Alternatively someone can invest with a sponsor on a value add deal or invest with a developer building new STNL or MTNL. In that way the breakeven cap rate can be  about a 9 to 9.5 cap rate for new development as a passive investor owning a smaller slice of a bigger project and the developer sells for a 6 to 7 cap for profit spread.

Some investors are still in the YIELD and EQUITY phase. The views of an investor with 5 million net worth and little income can be different than one worth 15 million and their business is throwing off close to 1 million a year profit. One might want riskier projects for more upside yield. The other wants minimum returns for safety that keep up with inflation and hopefully equity multiple upswings with dirt value in the future. Then they leave to the heirs in estate planning.

Investors can be start up phase of investing, mid cycle, or end cycle. The age of their life and many other factors can play into how they view investments, risks, and yield. I have had some buyers love a particular retail property for one reason and buy it and another investor say they would never buy that.

There are plenty of ways to find vacant buildings. They key is to know what to pay and how to re-tenant them or extend current lease with existing tenant to create the upside value. That is the harder part to accomplish.

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