Question

What is your YOC (%), spread (basis points), and is it worth developing economically? Assumptions: Market Rents are $5 NNN per square foot (psf) Land, Hard, Soft & Financing Costs total $70 psf Market Exit Cap Rates are 5%

Answer 1

In United States real estate business, normally the landlord, rather than the tenant, is responsible for real estate taxes, maintenance, and insurance. In a , "net lease" the tenant or lessee is responsible for paying, in addition to base rent, some or all of the recoverable expenses related to real-estate ownership. As the rent collected under a net lease is net of expenses, the base rent tends to be lower than rent charged under a gross lease.

Net lease types include single net, double net, and triple net leases, depending on the number of items they include. The term "net lease" often being used as a shorthand expression for any of these arrangements. The three most common expenses charged back in this fashion, often called the "three nets", are property taxes, insurance, and maintenance.[1] A triple net lease that includes the three nets is particularly common and is often abbreviated in writing as "NNN lease", but is still pronounced as "triple net lease"

Single-tenant net leaseEdit

NNN leased investments are generally leased to one single tenant and are thus referred to as STNLs or Single Tenant Net Leases. A NNN lease investment can however have two or more tenants, though it would not be considered an STNL investment. An example of this would be a Starbucks & MetroPCSwhich share a building under two separate NNN leases, or a retail strip center where all tenants are wrapped into one NNN lease. Both examples would be considered NNN leased investments; however they would not be STNLs. The risk of default is spread out over more than one tenant in such NNN deals (i.e. if either Starbucks or Metro PCS goes bankrupt, the other tenant continues to pay the rent due under their NNN lease). Such deals can appeal to investors seeking to spread risk, though the simplicity of collecting one rent check from one tenant is forfeited.

Double net leaseEdit

Another variation of the NNN lease is the NN lease or "Net-Net" lease which is pronounced "double net" where the "net" amounts generally are property tax and insurance.[1] Double net leases, like triple net leases, are usually, though not always, single-tenant arrangements, however, the landlord carries some extra financial maintenance obligation. The term "Net Lease" is tossed around loosely in the net lease industry, often used when referring to a triple or double net lease; however, there is a definite distinction between a triple net and a double net lease even though some brokers erroneously use the term "Net Lease" to describe both. Double net leased investments generally trade at a slightly higher CAP rate than triple net leased investments, because of the maintenance expenses which the landlord is responsible for. Brand new NN Deals with long-term builder warranties covering the roof and sometimes structure can be attractive to investors looking for a higher return.