Credit Worthiness of Tenants
A credit tenant is usually a business with a national footprint, a large regional tenant, or a local tenant with excellent credit that may be better than their national competitors. Only larger companies are called credit tenants. A lender will offer better financing terms for a development with a certain amount of space preleased or currently leased to credit tenants.
Term and Structure of the Net Lease
As we are net lease brokers, we focus on this market. It is important to remember that your rates could also be influenced on the type of net lease you have. Ground Leases/Absolute NNN properties have the least amount of risk followed by Double Nets and then (rare) Single Net properties.
Triple Net properties are usually single tenant net leases not to be confused with “N” leases or single net leases. This means that there is one occupant that pays all of the bills to maintain the operations of the business as well as the property. We see double net leases usually in the case of multi-tenant leases. This means the owner is usually responsible for the roof and structure and this one factor can influence the cap rate. Single net leases are riskier and often bring a higher rates along with them.
The Market and the Available Inventory
When you are looking to invest in property, you also have to consider how many properties are available in the area you want to buy in. for example if you want to buy a McDonald’s in an area where they are in high demand, the cap rate would be lower, but the price would be higher.
When Should You Use the Cap Rate?
It is important to use these as a way to analyze a piece of real estate you are thinking about investing money into. You can use these rates for commercial buildings, apartment buildings, multifamily rental properties, townhomes and several other types of properties. Ideally, you’ll want to determine the capitalization rate before you agree to any terms.
Cap rates are a beneficial component to understanding the worth of a potential or current commercial property. However, it isn’t the only factor that you should consider. Working with a brokerage firm like Calkain will help you evaluate the market and all of the other components when it comes to investing in real estate. If you need assistance in determining the cap rate of your property, just curious on how much it is worth, or even looking to buy, the experts at Calkain are ready to help.