Help on looking at a commercial deal - NNN ground lease

[Chase Gochnauer]

Hey guys I have some SFH rentals, looking to add a more passive investment and came across this commercial deal and hoping you guys can give me some tips before I dig further into it.

Price $412.5k
Cap: 8%
Recently signed 10 year NNN ground lease with options & escalators.

I'm new to the commercial arena. This is 14 acres in heavy industrial area with some larger buildings on it. It's my understanding that this would be purchasing the land only, and leasing to the company that has the building. The improvements are technically theirs but they obviously can't a building when lease is up.

What am I missing? 8% cap rate on this investment seems too easy.

[Joel Owens]

What Daniel I think is  talking about is a leasehold. You are buying the revenue stream for a set period of time.

Those trade at high cap rates because of the risk and difficulty financing.

A typical ground lease where you own the land itself generally if the tenant doesn't renew after the primary term you get the land by default.

Sounds like they just renewed a 10 year option. Industrial on 14 acres the cost of environmental remediation alone could exceed your purchase price. Also the older industrial buildings tend to not have the desired ceiling heights most new tenants want today.

If it's a corporate tenant that is nationally guaranteeing the lease for 10 years it isn't that bad. I would want them to have a remediation clause where they are on the hook for environmental cleanup costs if the site is found to be contaminated. Hopefully the owner had a phase one completed last time to show a clean site and if they have been the only tenant since then and it gets contaminated that is pretty self explanatory unless it leeched over from another property owners site.