Advance Auto Parts - Tenant Landlord Relationship

[Abhaya Pothina]

Hello BP,

Firstly, I absolutely love that BP exists and I look forward to being a more active part of it. This is the first time I am purchasing any commercial property and wanted to understand the realities of tenant - landlord relationships in NNN leases.

There is an Advance Auto Parts store that we are about to close on. This store was presented as a NNN lease and certainly the master lease is written such that the tenant is responsible for repairs, maintenance, landscaping, insurance, property taxes, damage etc. Overall the lease is very landlord friendly. The tenant has been in place for a few decades now.

However, the reality of the situation seems far from it. Less than 5 years ago, the tenant was using their option for extending the lease by 5 years. At that time, the landlord agreed to pay for the roof, a heating system and a cooling system and rent below what was agreed to in the prior extension. Further, in a prior lease extension, the rent was actually reduced i.e. YOY decreased around 5% in 2015! On average, the annual rental increase has been 0.87% (since 2009) and is going to be flat for the next 5 years.

Is this typical for a NNN lease (i.e. do the renewal negotiations skew so far in favor of the tenant that they can get the landlord to pay for major repairs etc. and the annual rent increase is quite small)?

Thank you in advance for your thoughts!

Incase it is helpful, a few other facts about the deal:

• It is a 8 cap
• It is not a typical free-standing store. It has a shared wall with a gas station.
• It is in a smaller town (~25K people)