Commercial property ownership doesn’t have to come with the classic landlord obligations of taxes, maintenance and insurance. As some investors will tell you, success in property investment can be measured by net trips to the mailbox: if a property owner is writing more checks than she is receiving, there’s often a way to improve that situation by offloading costs onto tenants. In a nutshell, that’s what the triple-net lease does — assigns the costs of property taxes, insurance and maintenance to the tenant as enunciated in the lease agreement.
While the idea seems revolutionary to those who are first hearing it, it’s important to remember there’s no such thing as a free lunch. Triple net isn’t appropriate in every case. The fact is that the creditworthiness of tenants — related usually the degree to which they are backed with guarantees that come with national corporate presence — is the hinge point around which a triple net proposition revolves.
Another reason triple net might not work for the landlord is the fact that tenants who pay taxes, maintenance and insurance necessarily seek lower rent payments. What this does to an owners NOI (net operating income) on the property is of course lower it, which means putting pressure on downstream cash flow requirements that may have been put in place as a result of some portfolio management technique.
Looking for more perspectives on net lease agreements? Check out these short videos from experts, agents and brokers around the US on the subject. It’s useful to hear the different angles on net, double-net and triple-net leasing structures all in one handy spot.
Wherein Chris Mirabella, a financier of triple-net properties based out of Carlsbad, CA gets into his company’s history with triple net and what the leas structure means at various stages of the deal.
Here we find Michael Bull of the Commercial Real Estate Show delivering intel on the net tenant lease sector interviewing CE Hutton of the Hutton Company.
Giving a shorter, more street-level perspective is Edina, MN’s Scott Miller of Keller Williams.