What's the exit play on a low cap rate NNN property

[Lee G.]

I've been baffled at some of the absolute NNN deals that are being sent around. For example I saw a Starbucks location listed at a 5.5 cap with a new 10 year lease. The lease has a 10% escalator at year 5. They are asking 1,073,000 for it. I'm wondering how does one exit that type of deal in a rising interest rate environment? I realize a 5.5 cap deal is an all cash deal but typically cap rates move with interest rates so if we get rates bumping up, the cap rates increase ultimately destroying your equity. Like with bonds, the building's value is a function of the return, which in this case is fixed by the lease.

Are you betting that you can renew the lease at a much higher rate at the end of the lease? Or are you just looking for some sort of capital loss/tax play in buying a building like that? @JoelOwens you sell these deals... what is the deal?