Triple Net Lease Investments

Triple Net Lease Investments, the phenomenon that allows a landlord to defer all of the owners’ traditional responsibilities to a tenant, has taken over as an investment of choice for both private investors and institutional buyers. By having all management/maintenance, taxes and insurance, (hence the three (3) nets) taken away from a landlord’s daily tasks and given directly to the tenant to handle, allows for the most passive form of real estate investment for a sole owner in today’s market. Most net lease assets fall into a few categories; office, industrial or retail buildings.

 Retail transactions make up the bulk of net lease investments. The drug store on the corner, restaurants along the busy street and bank branches in front of the new supermarket are all some of the most popular investments. But exactly what is one purchasing when the decision is made to become a passive real estate investor? With net leased properties, three considerations, in this specific order, must be analyzed before an investment is procured; the intrinsic value of the real estate, the tenant’s credit and the lease terms. First, the real estate or the location of the property. We cannot forget that we are still investing in real estate. The cliché adage of "location, location, location" does not go away just because there is income attached to a property. Even large, public companies go out of business. We've seen many examples in recent years. Therefore, we have to understand the value of the property without a tenant and the feasibility of attaining a new tenant if the current rent-payer decides to leave at any point. Next, the actual tenant that is in place for a particular property may dictate the value of that property. The difference between a high Standard & Poors (S&P) rated company as a tenant and a local "Mom and Pop" operator is usually vast. Meaning the probability that the S&P rated company defaulting on their lease is lower and therefore a landlord can be more assured of receiving their rent from that tenant for a longer period. Conversely, if the Mom and Pop operator had a couple of bad months, they could close indefinitely.  Lastly, the terms of the lease are important to an investor. The most sought after leases are absolutely passive to the landlord where, in most cases, they receive a wire transfer from the tenant each month and never so much as receive a phone call about the property. There are many variations on net leases, but those with the most passivity garner the lowest returns because there is little to no work involved for the landlord. www.calkain