Triple Net Lease for the small investor

[John McKee]

Okay you guys have asked so I'm going to break down a recent deal I did that is under 1million.  These are some of the basic fundamentals you need to look at when evaluating a property, but it's not all of them.    

Class B+ Location:  Meaning it's good but it's not time square

Anchor: High School Across the street

Walk Score: 95

Traffic Counts 19.5K

Traffic Light on block

Surrounding tenant occupancy: 98%

Overall city population growth year over year -1.9% (suspect primarily do to people working from home instead of coming into the city)

Demographics: Culturally diverse with 65% white, but decent median incomes of 100K.  Primarily white collar jobs.

Type: Neighborhood Retail/mom and pop cafe/coffee shop

Building: Retail condo on  ground floor approximately 1500 square feet

Renovation: Entire complex redone in 2015

Parking: Street parking is limited in front as it is a bus lane, but has parking across the street and cross streets.  Tenant can pay for parking in the building.

Density: 91%  This means that there isn't much more room to add residential or commercial. Neighborhood is labeled historic.

NNN Lease, 10 years, 2 personal guarantees, Price is $700K,

Financing: $175,000 down payment, 4.4% with a 25 year am.  Profit of $1,246.87.  Cap rate is 6.51% and ROE is 8.55%

Tenant sales: only 6 months of data as they are new but on track to achieve 7-10% range on real estate costs.  5 star google reviews (100+ reviews)

Observational notes:  Retail is located on the busiest side of the street with the exception of before and after school traffic.  Neighborhood traffic provides 7 days a week traffic compared to the inner city office (M-F 9-5 traffic)

Summary:  Overall good location/vibe with a solid anchor and consistent traffic.  Space should be able to lease easily if tenant ever goes Dark.  Negatives are slight population decline, unknown mom and pop, and high minimum wage requirements of the city.  Leasing docs indicate tenant is responsible for HVAC and glass.  Landlord is responsible for the walls/structure.  3% rent increases on a yearly basis.