All Forum Posts by: Kofi LeGrand-Sawyer

Hi BP,

Hopefully everyone's week is going well. I've included a brief description of single tenant NNN properties. Please let me know if you have any questions. Hopefully this helps find some good deals! Thanks.

What are Triple Net Leased Investments?

Many real estate investors become dissatisfied with the management problems associated with real estate investment ownership. In recent years, more investors are becoming familiar with the ease of owning commercial property occupied by a single credit rated national tenant, using the vehicle of a long term triple net lease (NNN). The advantages of NNN leases are that the tenant is obligated to pay for all expenses associated with the operation of the property including property taxes, maintenance, insurance etc. When a NNN lease is combined with a single national credit tenant, the investor can be assured of a management free property with minimal risk. Companies with a net worth of over $1 billion such as Walgreens, Walmart, O'Reilly, Jack-in-the-Box, Barnes and Noble, Winn-Dixie, 7-Eleven, Inc. and Sherwin Williams are the typical types of NNN leased investment properties that investors look for.

What are the typical returns from Triple Net Leased Investments?

That depends on how you evaluate your investment. Capitalization Rates are the most common way to evaluate returns (take 1 year's net income/purchase price). NNN leased investments currently average 5% to 8% capitalization rates depending on credit risk, location and value of the income stream. With the ups and downs of the stock market and the recent turmoil in residential housing, more and more investors are seeking refuge in single tenant NNN leased real estate investments. This increased demand, coupled with low interest rates, has driven cap rates down over the past 10 years. Internal rate of return (IRR) is the value of an investment over a period of time. Assuming over a specified period (usually 10 years) of income, appreciation, payment of debt (if any), resale value, cost of resale and discounting the numbers into today's dollars, IRRs for NNN leased investments are usually 10%-14%. Yield from single tenant NNN leased real estate exceeded that of 10-year U.S. Treasury securities by 467 basis points as of November 2012.

Credit: Net Leased Real Properties, Inc/National RE Investor

The Bay Area, LA, Chicago, NY and Boston markets are projected to continue growing for the next 36 months. Some investors are selling their inventory in secondary and tertiary markets to focus only on buying and developing in major markets. This will provide opportunities for small and middle sized investors to pickup A and B class apartments in these secondary and tertiary markets. As more new construction is brought to market, owners are going to need to make rent concessions for new tenants in order to stay competitive and attract them to older apartment communities. Some areas have peaked or are peaking as far as asking rents, but vacancies should remain relatively low.

Any city is good.

Please post here or contact me if you or someone you know manages or develops 100+ unit apartment communities. Thank you.

It's challenging to wholesale in the Bay Area considering activity and prices are up, and inventory is down. You should lookup for sale by owner listings on Craigslist and maybe do door knocking or direct mailers in the communities you're looking to work.

Matt,

Regarding 100+ units, right now inventory is low for below market multifamily deals. The REO properties are getting multiple offers. Most trades are happening close to current market value, which is still 15-30% below 2007-2008 values, so you're not going to see properties priced 15-30% below current market value.

Good knowledgeable post.