*What is a single-tenant, net-leased
A single-tenant, net-leased investment is typically a
freestanding office, retail, or industrial building that is leased and
occupied by one user or one company. Typically the tenant has committed
to a long-term lease - usually longer than 10 years, and as long as 25
years with increasing rent over the lease term.
What is a net lease?
There are different types of leases for commercial property in the U.S.
The two most common leases are full-service leases and net leases.
A full-service lease means that the tenant is paying one
base amount to the landlord/owner to occupy the space and the owner pays
all the expenses related to the building including insurance and
property taxes. With a full-service lease, the landlord/owner also is
responsible for all maintenance related to the building. For example, if
a thunderstorm damages the roof, the landlord/owner must pay for the
In comparison, a tenant with a net
lease is responsible for paying rent plus some or all of the operating
expenses of the building such as taxes, insurance premiums, repairs, and
utilities. Depending on how the leases are structured, they can be
net-net leases or triple-net-leases. Specifically, in the case of a
triple net lease, also known as NNN leases, the tenant agrees to pay all
of the building's operating expenses, real estate taxes and insurance.
*How are single-tenant, net-leased investments different from
Multi-tenant buildings have more than one tenant, and as a result,
owners and landlords must juggle multiple leases that begin and end at
different times. These leases are rarely longer than seven years. That
means that the building's financial performance is vulnerable to the ups
and downs of the market.
Many net-lease investors have
previously owned other types of real estate but are looking for an
investment that requires less maintenance and supervision. For example,
many apartment investors end up selling their high-maintenance
properties and then reinvesting the sale proceeds in single-tenant,
net-leased retail properties, as do many land owners who have previously
never received any income or tax benefits from their property.
*Who can invest in single-tenant, net-leased
Net leased properties are appealing to a wide variety of
buyers, from high net worth individuals to partnerships to large
institutional investors like real estate investment trusts, life
insurance companies and pension funds. Net leased properties also are
very attractive to investors who need to do 1031 tax-deferred exchanges,
or 1031 exchanges for short.
*What are the benefits of investing in single-tenant, net-leased
Many people consider single-tenant, net-leased properties as bond-like
investments because of their stable, predictable returns. Because
tenants commit to long-term leases, there's very little re-leasing risk.
Moreover, single-tenant, net-leased investments can be tailored to an
investor's risk-reward expectations by choosing tenants with different
credit profiles. For example, some tenants are rated by national credit
ratings agencies while other tenants have only their previous financial
performance to recommend them.
*What are the risks related to investing in single-tenant,
While there are very few risks related to investing in single-tenant,
net-leased properties, tenants with non-investment grade credit profiles
offer higher levels of risk. But that risk typically provides higher
returns as well. And investors always need to think about the
"re-leaseability" of a property if the net-tenant were to vacate the
How are single-tenant, net-leased assets valued?
Unlike traditional real estate investments whose valued is determined
exclusively by the real estate itself, a single-tenant, net-leased
property's value is determined by a combination of factors including the
tenant's credit, the length of the lease and rental escalations over
the term, and, last but not least, the real estate. In markets where the
real estate experiences wide valuation swings, a single-tenant,
net-leased property will maintain its value because of its bond-like,
long-term lease and the credit tenant guaranty for the lease.
*When is the best time to invest in a single-tenant, net-lease
Net-leased properties are like all-weather tires. They are good
investments in both good and bad economic times and in hot and cold real
estate markets. Here's why: a single-tenant net lease is guaranteed by a
long-term lease at pre-set rental rates. As an owner, you know exactly
who will be a tenant in your building, how long that tenant will be
there and exactly how much rent they will pay you. That means you will
derive a steady income from your investment, regardless of how the
economy or real estate market is performing.