Why invest in a net lease?
Investors choose to invest in net lease properties because for several reasons. Net lease assets offer a reliable source of fixed income with little to no management hassles. These investments tend to be have long term, investment grade tenants that reduce risk and the often included rent increases are a hedge against inflation. Further, with certain properties, as with other commercial real estate, the property itself may become a generational investment that overtime, due to the location, significantly increases in value on top of the income flow.
How do I compare net lease properties?
Comparing cap rates is the easiest way to compare different net lease properties but does not tell the whole story. The real estate itself, the creditworthiness of the tenant, and the lease are very important aspects to consider when looking at net lease properties. Each property will have its own unique mix of these factors. Additionally, you should understand the variances in cap rates based upon region as well as within different segments of the net lease market.
What are some common types of net lease tenants?
Auto parts stores, banks, big-box stores (such as Wal-Mart or Target), pharmacies (Walgreens, CVS, and Rite Aid), and restaurants are some common types of tenants you will find as net lease tenants. On the Net Lease Advisor website, you can see many of the various sectors, along with the top tenants in each.
What types of leases are covered under net lease?
Triple net and double net are the two of the most common types of leases covered under net lease. With the triple net lease structure the tenant will pay the landlord for the ability to use the building and cover any taxes, insurance, and maintenance costs for the property. Double net leases require some form of landlord responsibility out of the investor, commonly any repairs to the roof or structure of the building.
Are ground leases triple net?
Yes. All ground leases are triple net but not all triple net leases are ground leases. In a ground lease, the investor owns the land which they rent to a tenant who then constructs any buildings at their own expense. The lease is triple net because the investor is not responsible for any maintenance, the investor does not own the building.
This arrangement can benefit all parties involved. The owner of the ground has a passive source of income and did not have any upfront construction costs. Tenants can build a structure to their own specifications and while avoiding the cost of purchasing a tract of land.
What happens to a building constructed by a tenant on a ground lease?
Most ground leases will include a reversionary right. This means at the end of the ground lease any buildings will become the property of the investor.
As you get closer to making a decision with your net lease investments, make sure to turn to Calkain for information and guidance. We are experts in the industry and pride ourselves on helping clients maximize value in the net lease marketplace. We have more information available on our Net Lease 101 site, and we’d be happy to answer any questions you may have. Contact us now!Investing In Net Lease FAQ