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Triple Net Lease Appraisals
Since 1975, Walter Duke + Partners has completed over 1,000 Florida Triple Net Lease Appraisal assignments, valued in excess of $2B.
Our wide-ranging clients include high net worth individuals, large institutional investors, life insurance companies, and pension funds.
We’ve even appraised cell tower leases.
What is a Credit Tenant Leased Property?
Credit Tenant Leased Properties properties are typically single-tenant, freestanding office, retail, or industrial assets that are leased and occupied by one user or company.
The typical tenant commits to a long-term triple net lease, with terms up to 25 years.
Is a Triple Net Lease (NNN) a Good Investment?
Due to their stable, predictable returns over a longer term, Credit Tenant Leased Properties are often considered to be bond-like investments.
Ground Lease and 1031 Exchanges.
This business can get very confusing, but thankfully Walter Duke + Partners has decades of experience with ground leasing.
We understands the subtle factors in play, and help our clients maximize their results for single-tenant net-leased investment, CTL properties, and 1031 tax-deferred exchanges.
Avoid Costly Mistakes
What you don’t know can hurt your business, employees and bottom line. Don’t waste time with trial and error on critical research when expert help is merely a click away.
Real Estate Investments.
Walter Duke + Partners’ expertise assists our clients in making the best financial decision possible.
Normally, the risks involved with a single-tenant, net-leased properties is relatively minimal. However, we can assist those clients who seek a higher level of return earned through non-investment grade credit profiles.
Be aware, higher return often means higher risk, particularly in the unfortunate event the net-tenant were to vacate the space and you were left with the bricks and sticks.
Four Decades In The Making
Deeply rooted in the Florida market, Walter Duke + Partners provides innovative solutions and sound market advice.
We’re routinely ranked alongside the finest national firms and proud to help our clients, including people just like you, make highly informed critical decisions.
Avoid Costly Mistakes
What you don’t know can hurt your business, employees and bottom line. Don’t waste time with trial and error on critical research when expert advice is merely a call or click away.
We’d like to hear from you.
Need help? Call our office at 954-587-2701.
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Our NNN Portfolio
Walter Duke + Partners is proud to have completed over 1,000 NNN appraisals. From McDonalds ground leases to Fortune 500 corporate headquarters, over the last 40 years a few of the companies we’ve worked with include:
- Walgreens
- Family Dollar
- Aaron Rents
- Starbucks
- JP Morgan Chase Bank
- Wells Fargo Bank
Our Portfolio
Walter Duke + Partners is proud to have completed over 2,000 housing appraisals and 1,000 educational assignments valued in excess of $26B.
Cell Tower Appraisal & Valuation Services
Cell towers or rooftop telecom lease are often simply viewed as miscellaneous income or “found money”, but nothing could be further from the truth. The reality is cell towers are significant telecom assets that are often overlooked or largely discounted by real estate owners.
Cell Tower Appraisal and Valuation Services
One reason for this disparity is the common misconception that a property owner, real estate broker, or an appraiser may have that a cell tower lease is a real estate asset, when in reality it is a telecom asset.
The following are some factors to use in determining the value of your lease.
Utility of Leased Site: The most important factor in determining the value of a cell tower site and related cell tower lease is the utility of that particular site to the cell tower tenant. The utility of a cell tower site is founded by two basic variables.
First, the importance of the site to a telecom carrier’s wireless network and second being the revenue produced from the site.
If the cell tower tenant is a wireless carrier (e.g. AT&T, Verizon, Sprint, etc.), the first priority of the site is how it serves the needs of carriers’ wireless networks in the immediate area.
Conversely, if you are leasing your land to a cell tower company (e.g. Global Tower Partners, American Tower, SBA, etc.), then the only interest of these tenants is subleasing space on the tower to wireless carriers; the more carriers they can lease to, the more valuable the site is to that tenant.
Location of Leased Site: If your focus in determining the value of a cell tower site’s is primarily based upon population density or even ground elevation surrounding the site, your target is usually going to be missed when it comes to actual value of that site to a telecom company.
While the above mentioned factors have an influence in determining value, the major components of determining the worth of a cell tower site and its corresponding lease are the alternatives / options a telecom tenant has in the immediate area where the cell tower is located. These options are usually directly tied into local zoning/permitting restrictions in that area.
As a result, if you rely solely on the property values’ factor to determine the worth of your lease you could be taking a costly misstep in the wrong direction.
Telecom Equipment on the Leased Site: As mentioned above, a cell tower lease is more of a telecom transaction than a real estate transaction.
A perfect example of this is that part of the value of a cell tower lease to a telecom tenant is the investment a company has made in the site based on the construction cost of the tower and the functioning telecom antennas installed at the site.
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In United States real estate business, "Net Lease" is a term used to signify a lease structure in which the tenant or lessee is responsible for paying a portion of or all of the common expenses related to real estate ownership, in addition to base rent. Real estate related expenses associated with ownership are divided into three categories referred to as the three nets which are property taxes, insurance, and maintenance.[1] The rent collected under a net lease is net of expenses. It therefore tends to be lower than, for instance, rent charged under a gross lease. Net lease types include single net, double net, triple net and even bondable triple net leases. The term "net lease" is often used as a shorthand ｅxpression when referring to NNN leases.
An NNN Lease is a net lease, structured as a turnkey investment property in which the tenant is responsible for paying the three major expenses associated with commercial real estate ownership.[2] "NNN" stands for "Net-Net-Net", is pronounced "Triple Net" and represents the three most common, consequential real estate related expenses:
- N - Property Tax
- N - Insurance
- N - Maintenance
The rent the landlord receives from the tenant is in effect net of expenses.[3][4]
Contents
[hide]Variations of the NNN Lease[edit]
Single Tenant Net Lease[edit]
NNN leased investments are generally leased to one single tenant and are thus referred to as STNLs or Single Tenant Net Leases. A NNN lease investment can however have two or more tenants, though it would not be considered an STNL investment. An example of this would be a Starbucks & MetroPCS which share a building under two separate NNN leases, or a retail strip center where all tenants are wrapped into one NNN lease. Both examples would be considered NNN leased investments; however they would not be STNLs. The risk of default is spread out over more than one tenant in such NNN deals (i.e. If either Starbucks or Metro PCS goes bankrupt, the other tenant continues to pay the rent due under their NNN lease). Such deals can appeal to investors seeking to spread risk, though the simplicity of collecting one rent check from one tenant is forfeited.
Double Net Lease[edit]
Another variation of the NNN lease is the NN lease or "Net-Net" lease which is pronounced "Double Net" where the Net's generally refer to property tax and insurance.[1] Double net leases, like triple net leases, are usually, though not always, single tenant deals, however the landlord carries some extra financial maintenance obligation. Some of the Discount Dollar stores and Auto Parts dealers[5] operate under double net leases, where the landlord is responsible for the roof and structure of the building. The term "Net Lease" is tossed around loosely in the net lease industry, often used when referring to a triple or double net lease; however there is a definite distinction between a triple net and a double net lease even though some brokers erroneously use the term "Net Lease" to describe both. Double net leased investments generally trade at a slightly higher CAP rate than triple net leased investments, because of the maintenance expenses which the landlord is responsible for. Brand new NN Deals with long-term builder warranties covering the roof and sometimes structure can be attractive to investors looking for a higher return.[6][7]
Risk[edit]
Though NNN leased investments are considered to be highly risk-averse investments, especially when leased to a national credit tenant, the landlord is still exposed to some financial risk. In the fine print of most NNN leases these risks are specified. For instance, who carries the obligation to rebuild after a casualty (natural disasters included) or whether the tenant must continue paying rent should the property be condemned? In other instances, certain risks (e.g. fluctuations in property taxes) cannot be completely accounted for in the initial contract, forcing the landlord to estimate these costs early on. In this scenario, if the landlord's accountant does not follow through with changing the invoices appropriately, it may cost the landlord thousands of dollars by the end of the taxable year. Although NNN lease investments carry relatively low risk, they require high levels of oversight for these reasons.[8]
In one variation of a NNN lease contract, the "Bondable NNN Lease" (sometimes referred to as a "True Triple Net" or "Absolute Triple Net" lease) the tenant cannot terminate the lease or seek any rent abatements under any circumstances—mitigating some risk for the landlord.[9]
Benefits[edit]
For Investors[edit]
NNN Lease[edit]
Investors can benefit from NNN lease properties in a variety of ways. In NNN leases tenants take on the responsibility of major expenses such as HVAC and roof repairs keeping the operation cost lower for the landlord. Typically NNN leases have lower rent per square foot rates which increases the tenant pool when a landlord is ready to lease the property. For specific tenants, landlords will frequently modify leases allowing for greater flexibility and higher tenant retention.[10]
Absolute Net Lease[edit]
Most investors in today's net lease market prefer an investment that is truly passive, therefore, an absolute net lease is a requirement for many of these investors. Investors prefer to hold these assets long-term, which means there is likely some wear and tear maintenance, as well as a roof that will need to be replaced at some point. With an absolute net lease in , the risk of expenses associated with building maintenance shifts solely to the tenant, allowing the landlord to receive a 100% passive investment.[10]
NNN 1031 Exchange[edit]
In its simplest form, a 1031 exchange is a tax deferral strategy for real estate transactions in which a property owner or investor sells one property and purchases another within a specific time frame. The transaction does have to qualify as a "like kind” exchange.[11]
For Tenants[edit]
Often a NNN lease will offer a lower monthly rent than a gross lease since the tenant will be responsible for maintaining the building. In a NNN lease tenants are responsible for maintenance and repairs, therefore cost savings for expenses related to operating the building are passed on to the tenant instead of the landlord.[10]
Common Misconceptions[edit]
A "Bondable NNN Lease", the most extreme form of a NNN lease investment, is often used incorrectly in the net lease industry when referring to NNN properties which are merely occupied by investment grade tenants. The tenant's credit rating is a crucial factor which the lender takes into account in their decision to lend on a property and under what terms; however, it is not the characteristic which distinguishes a bondable triple net from a standard triple net lease investment. When evaluating the value of the credit tenant’s credit, most brokers, and lenders, base their analysis on the credit rating garnered by one of the major credit agencies (Moody’s, Standard & Poor’s, Dunn & Bradstreet). Though these ratings are important, they don’t always paint the most accurate picture of a company’s overall picture and future viability. Some brokers offer the services of an in-house stock broker and analyze the credit tenant’s financials and stock performance when the tenant is publicly traded on an exchange. A great deal can be learned by examining the credit tenant’s stock performance in comparison to other industry competitors. Other readily available metrics such as the P/E ratio, PEG ratio, and debt-to-equity ratio can be indicators of a credit tenant’s financial health.
STL Components & Values[edit]
The value of a Net leased investment is determined by the value of the Real Estate, the value of the credit tenant, and the value of the lease itself.
- In a standard NNN leased investment the landlord owns the land and building while collecting rent from the tenant. If the tenant chooses to leave or the landlord decides he wants a different tenant when the lease term is up, he still owns the building and land. The location of the land and the potential of re-leasing it should be taken into account. Planned developments in the area as well as current and future demographic trends all affect the real estate’s value. The physical building should also be factored in when determining the real estate’s value.
- The second determinant of value is the quality of the credit tenant. This is generally determined by the tenant’s current credit rating and past financial reports. Future financial projections are also an important indication of financial strength. Most investors use the Standard and Poor's credit ratings. In order to qualify as an investment grade tenant, the company must be rated at lease BBB- by Standard and Poor's. Properties leased by credit tenants are in the highest demand and therefore command a lower capitalization rate than non-investment grade tenants.[12]
- The third determinant of value is the lease itself. As mentioned previously NNN leases are more valuable than NN leases because the landlord is responsible for some of the expenses in a double net lease. The length of the lease is also a determinant of value (20 years of guaranteed income will be worth more than say 10 or 15 year terms). Generous rental increases, also known as rent bumps, add value to the lease and protect the landlord against inflation. Some leases also have a percentage rent kick in if their gross sales hits a certain CAP. Most leases grant the tenant options to renew (several short term options put the landlord in a weaker position when it comes time to re-new the lease). Are the current rents called for in the lease below market? If they are the landlord has the opportunity to command higher rents when the lease term is up.
Net Lease Planning as an Investment Tool[edit]
NNN lease planning is a rich investment tool which provides the investor with many opportunities to navigate an ever-changing market. NNN lease investments are essentially inflation-protected bonds guaranteed by a credit tenant, rather than a state or local municipality. The tenant makes monthly payments to the landlord, while the real estate (and often rent bumps called for in the lease) provides the investor protection against inflation. Bonds have long been a popular investment tool among retirees and high-income earners seeking fixed income without having to pay taxes for years. NNN lease investments provide similar tax advantages as tax-exempt municipal bonds, without forcing the investor to settle for lower yields or opening the investor up to a large capital gains hit.[13] If an investor were to purchase a bond in the secondary market and turn around and sell it for a profit, years later, he would have to pay a capital gains tax on the profit, regardless of whether or not the bond is exempt from state income tax. This is not the case when investing in NNN leases because of the fact that although structured like a bond, they are still considered real estate investments and therefore fall under the same tax laws as such which means that they can be depreciated in the same manner as similar income producing commercial real estate. The taxes on the income they generate can be written off or deferred over the life of the asset. The investor of course has to pay said depreciation back when he sells, however this too can be circumvented by evoking a Starker’s 1031 exchange and trading into another like-kind property.[14][15] NNN leased investments are also financeable allowing the investor to leverage the credit of their tenant and the interest payments would also be a write-off. In addition to the numerous tax benefits, retirees often choose NNN leases when planning their estate or retirement because of the straight forward nature of NNN lease investments. A retiree can achieve long term, guaranteed, fixed income with rental increases from a simple product and their Heirs will not be overwhelmed by the many complications associated with wealth management.[16]
Off Market NNN Properties[edit]
An Off Market NNN property is a NNN property available for sale, but the NNN property is not publicly marketed. Many investors and developers prefer Off Market NNN deals for a variety of reasons, one of which is controlling the publicity of the availability of the property, which could create issues with other lease negotiations on other deals and a whole slew of other issues. There are several professional commercial real estate brokers that specialize in Off Market NNN Properties.[17][18]
See also[edit]
Competent, Connected, Community
Making the right financial decisions concerning your commercial real estate can make or break you. With over 15,000 assignments successfully completed in excess $25B, Walter Duke + Partners is your trusted source in commercial real estate and business valuation in the Florida market.
Four Decades In The Making
Deeply rooted in the Florida market, Walter Duke + Partners provides innovative solutions and sound market advice.
We’re routinely ranked alongside the finest national firms and proud to help our clients, including people just like you, make highly informed critical decisions.
Doing Business With Confidence And Ease
From the very beginning, we understood the importance of building relationships, from one-person operations to the largest organizations in the world.
An exceptional client experience is a focus of our team.
Enriching The Lives Of Others
Maybe we define success a little differently at Walter Duke + Partners, and for that reason, we are driven by a deep desire to invest heavily in our community and improve the human condition.
We have always believed in helping those less fortunate.
