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REAL ESTATE NNN Leases

Jason_MI

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Jul 25, 2007
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Can anyone explain, in simple terms (small words), how a triple-net lease works? I keep hearing about them and how great they are, but haven't quite grasped the concept.

Thanks
 

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SteveO

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It is simply putting all the expenses, including roofs, parking lots, taxes, insurance, etc. on the tenant. The tenant will basically treat the property as if they own it but with restrictions on what they can do to it. Most NNN leases are fairly long term although they seem to be becoming more popular. They started out as single tenant type buildings such as gas stations, fast food restaurants, convenience stores, etc. But NNN (actually called modified NNN) are sometimes used on multi-tenant office buildings these days.
 
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Jason_MI

Jason_MI

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So (if you don't mind the comparison), it's sort of like a land contract for commercial buildings, but they get no equity?
 

SteveO

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Not really, they still need to re-lease at the end of the term. It is just a lease with all the expenses added on to the tenant.
 
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Jason_MI

Jason_MI

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So what is the big benefit, plus to this? I always hear of NNN's as being the real gravy, but all expenses, etc., are in the rent to begin with. Or is it less of a headache for the landlord?
 

SteveO

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I like to look at NNN deals as a way of parking money when I am done with the game. A lot of the big credit type tenants will work for long term leases with steady rent increases. This keeps the appreciation at a minimum but adds security and reduces work.
 

randallg99

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Aug 9, 2007
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So what is the big benefit, plus to this? I always hear of NNN's as being the real gravy, but all expenses, etc., are in the rent to begin with. Or is it less of a headache for the landlord?

in my experience as the landlord, the main advantage of a NNN lease is that any extra costs are automatically passed on to the tenant. In a state like NJ where RE taxes have run amock, the landlord does not have to absorb the increases. Same with insurances and any ordinary upkeep to the property, ie snow removal, landscaping, etc otherwise known as CAM charges (common area maintanence)

As a tenant, you may want to negotiate a ceiling in helping keep some of the expenses within reasonable levels and share some of the liability with the landlord/owner.
 

Allthingznew

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I managed Real Estate for a developer in my area, and what I learned there taught me that I would prefer to own commercial retail over any other kind of property.

In addition to what was mentioned above, you can even have your leases read in such a way that the tenants will also pay you to manage the property. My experience was 10%. The way it was calculated was all expenses were totaled and then 10% of that number was added to the total as a management fee. Pretty sweet. :smxB:
 

LightHouse

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I think it was covered however someone mentioned their NNN passed roof work to the tenant. Not my case, our NNN leases put us in harge of the exterior building. all RTU's, storefronts/warehouse fronts, interiors etc are on the tenant, such is lower rent for them. We still factor in the CAM charge which basically pays for everything we maintain on a NNN property. get a good roof that is warrantied for 10 years and your set for ahwhile. No diffrence in lease lenght and we have one class B office building that had a NNN leasee in it that was a shipping company....... TOTAL nightmare.
 

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SteveO

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There are many types of commercial leases. A true NNN lease will have the tenants paying for everything and completely maintaining the property. If there are CAM charges involved, it is not NNN.
 

Allthingznew

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There are many types of commercial leases. A true NNN lease will have the tenants paying for everything and completely maintaining the property. If there are CAM charges involved, it is not NNN.
Good deliniation. I guess I didn't work with true NNN leases cuz we did have CAM charges hence the management fee, but the net effect was the same. All costs, including roofing were passed to the tenants and each paid their pro rata share.

So some examples of properties that could be true NNN would be any stand alone building with one tenant use, like a restaurant or bank, but they also have to be the only one on the property too right? Cuz once tenants share the property CAM typically comes into play.
 

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