The ups and downs of a single tenant NNN Lease property

[John McKee]

Bought a property in 2005 that was an absolute NNN corporate restaurant lease. For 11years they paid rent like clock work, then one day they shut their doors and did not fulfill the rest of their 15 year corporate term. They had 4 years left and decided to give me only 1 year of rent on the remaining term in their shakedown negotiating. It took 1.5 years to find the right restaurant tenant (franchisee). I chalk it up to the Lazy brokers that took the listing. Tenant struggled a bit and then covid hit. Tenant could not pay taxes and had to give him a break on rent. I was on the hook for the roof and some other structural repairs now that I owned the building. My IRR was starting to see some cracks and further rent reductions were needed to keep the tenant running. Luckily I knew the land was valuable, but I had to hang on. I just didn't have the time to do the work which was to redevelop the property. I had to come out of retirement recently to put some work into stabalizing this property so I started dialing like a hungry broker to find a deal. I finally landed a deal with a Major Restaurant group with strong sales and negotiated an absolute NNN lease for more rent for the next 10 years. The downside is that I have to put in $480,000 Dollars of TI and brokerage fees, but the upside is that they will be putting in 1.5 million to redesign and improve the existing structure. 10 years from now I might have to go through the same thing, but I wanted to give you an example of how things can go wrong at the end of these leases.