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Why are triple net leases so good?

July 7, 2019

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.

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