Halfway house/transitional living facilities

[Nick L.]

Hoping someone here has experience in this area... it's way out of my circle of expertise.

A local broker is offering a halfway house/transitional living facility at a clear 12 cap NNN from a strong regional tenant. Lease has 9 years left on the primary term and two options totaling 15 years. 3% rent increase every year.

Per the broker, the licensing and zoning are so hard to get that the tenant is more or less locked in place. The demand for this type of facility is unlikely to decrease. Asking price is in line with city assessment and I'm pretty sure they'd take a lowball.

However, the underlying building and land have very low value without this one specialized use. I don't know how to evaluate the prospects of this type of business. And you never know when the regulatory environment might change so halfway houses crop up everywhere.

Any thoughts?