Commercial Triple Net deal??

Question

I'm currently Looking at a commercial triple net deal. Buying the property from the owner who will then sign a 10 year lease. 750k for the property and 5500 monthly income. Property includes office space and vehicle maintenance facility.

Any thoughts? What questions should I have answered?

Any thoughts?  What questions should I have answered?

Louis Swingrover · Answer

@J Beard good point! I totally agree that the tenant's credit is an important issue and that the greatest contract in the world doesn't guarantee that the tenant will satisfy their obligations.

Furthermore the nature of their business, the demand for their product in the surrounding market, demographic factors, and then broader macroeconomic factors ought to be weighed as well.

That said, none of this makes any given NNN deal a total crap shoot! (Not to mention that many of these risks are not unique to triple net investing.) I'd say these risks ought to be analyzed and mitigated, and then all the factors weighed carefully.

Jeff B. · Answer

Triple net lease is a 'highly leveraged transaction'  aka little investment controlling a high value asset.  Such transactions are far more risky than a normal lease:

Triple net lease offloads these responsibilities to the leasee:

• all maintenance of any/every description
• property taxes
• mortgage payments

Lessor collects rents and has ZERO expenses.

It should be clear, that even though the leasee may have the obligation for the above, it doesn't he's solvent enough to fulfill it - - and that can create badly maintained property, tax liens and even foreclosure that you were not aware of.

Roll the dice - - it's a Crap-shoot!!

Louis Swingrover · Answer

I think this article does a decent job providing a quick high-level summary of the major issues to look at when analyzing a triple net or other lease contract. It mentions:

• Obligations
• Liabilities
• Lease Bumps
• Renewal Options
• Notice
• Early Termination Options
• Co-Tenancy Clauses
• Tenant Buyout/Sublease

Hope this helps.

Ronald Filian · Answer

just a couple of points...I would also request a personal guarantee on the lease, outside of the corporate guarantee for the 10 years. Annual bumps in rent (3% inflation bumps). Confirm zoning plans (comprehensive plans) with the city. Santa Rosa Beach is a beautiful upcoming area, the city may have plans for that part of town. retail / mixed use etc.  Good Luck.

Ty Patillo · Answer

What's the CAP on the property?  Are there any easement agreements for the property that need to be reviewed?  These questions may be a little late but, I hope you made a favorable decision.

Josh Trapp · Answer

thank you

Commercial Triple Net deal??

Most Popular Reply