Why are triple net leases so good?
In net leases, compared to gross leases, the tenant has extra expenses besides rent. These expenses fall under three classifications: property taxes, insurance, and maintenance. A lease where all three of these expenses are paid by the tenant is known as a triple net lease, NNN Lease, or triple-N.
The tenant takes care of all property expenses and must maintain the building. Triple nets are usually only offered to businesses that can show rent coverage ratios in the 2-4x range. The rent payments are generally tied to an inflation index or include fixed and automatic rent increases, and are senior to other expenses.
Look for a tenant whose improvements would be easy to convert to the needs of another. “Theme” constructions, such as those of most fast food chains, should pay a premium. Even warehouse space can be highly specialized.