To NNN or Not to NNN? That is the Question.

[Khaled Seirafi]

Hey there,

So I have a vacant commercial space that I've been trying to lease out. Normally, I only do NNN leases for our commercial tenants. Now I know that with these uncertain times, it might be a stretch to hope for a tenant who'd be willing to sign a NNN lease. But if we were to sell the property (it's a mixed use building with two commercial spaces downstairs, the other commercial space is on a NNN lease), would it hurt its valuation if this space were leased out with a non-NNN lease? If I am able to get a tenant who'd sign a NNN lease (probably not going to happen, but let's just say hypothetically) and then I decide to sell, that will cause their share of the property taxes to at least double and perhaps triple overnight due to the property tax base reassessment. The other space is paying about $260 per month for property tax as it is. So, that would go up to $520 to $780. Not sure if it would be ethical for a new tenants to have them sign a NNN lease while we have the intention of selling.

Any thoughts? 

[Cason Acor]

Your proforma NOI would be less with either a gross or full service lease compared to NNN. So yes, that would negatively affect your market value.

What sort of terms are you offering? Consider lowering your asking rate or other concessions to get the space filled. A unit with a tenant paying slightly under market rents is better than an empty one.