Certainly there are many different types of investments within the commercial real estate arena. Many people invest in apartment projects, office buildings, shopping centers, hotels, and warehouse buildings with a great deal of financial success. So what is the reason that single tenant triple net properties are so popular?
As you can guess from the description, single tenant properties are simply those commercial properties with only one tenant in them. Some examples would be a freestanding Starbuck's, McDonald's, Dollar General, or Verizon store on the retail side. However, they can also include warehouse and office properties. Think about a Fed Ex warehouse or a Verizon headquarters building...those are also single tenant properties.
Second, "triple net" means that the tenant in the property pays all of the taxes, insurance, and maintenance costs of the property. In a "true triple net lease", the tenant is even responsible for the roof and structural portions of the property. So, in an absolute triple net single tenant property, the landlord actually has no responsibilities whatsoever. The investments are sometimes referred to as "mailbox money" because all the landlord theoretically has to do is to collect a check in the mailbox each month.
With a shopping center or other multi-tenant triple net property, the tenants may reimburse the landlord for the triple net costs, but the landlord still has to collect those sums from all of the tenants and contract for the provision of most or all of the services provided to the property. Plus, if a tenant moves out, then the landlord has to eat that portion of the triple net charges attributable to the space that the tenant vacated. With a single tenant triple net property, that is usually not the case.
Many investors in single tenant triple net properties want the security of a strong real estate investment without all of the management and tenant relations hassles that sometimes come with those properties.
Of course, the financial strength and stability of the tenant are of paramount importance because you are relying on a single tenant for your income. That's why strong tenants like Dollar General, CVS, Verizon, Walmart, and others are so popular. Also, the location of the property is still extremely important. After all, there will come a day with basically every property when the tenant will move on to another location, go out of business, etc.. When that happens, you have to have confidence that you will be able to lease the property to another tenant if you still own it.
Typically, the cost of a single tenant triple net property (as with any other real estate investment) will vary depending upon the perceived safety of the investment. Factors in the safety of the investment include the strength and stability of the tenant, the length of the lease term, the type of construction (for instance, a specially designed building like a Checkers or a Sonic isn't going to attract most fast food tenants), the location (traffic count, number of households located nearby and the median household income of those households).
There is a lot of analysis that goes into finding the right commercial real estate investment, and the same is true with single tenant triple net properties. If you are not a commercial real estate expert, it is highly recommended that you obtain the services of a qualified broker or advisor. If you have additional questions, please don't hesitate to call us.