Triple net (NNN) leases are commercial real estate lease deals where the tenant is legally responsible for covering most of the business operational costs by paying a defined portion of expenses beyond the rent to the landlord. These tenants take care of everything from plumbing, paint, HVAC to property taxes, common area maintenance, and insurance premiums.
This leasing agreement is a win for investors, landlords, and tenants. Generally, tenants enjoy tax deductions for triple net lease property by billing the property tax expenses as business expenses. They also get the benefit of establishing their businesses in desirable locations.
On the other hand, investors enjoy the freedom of adding a reliable income stream to their portfolios with little to no managerial obligations. This combination of consistent, equity-building returns, long-term security, and little or no day-to-day responsibilities appeals to a broad range of investors.
The triple net market in California will continue to be robust as the demand for consistent commercial estate revenue streams grows in the contemporary volatile economic environment.
Are you interested in purchasing or leasing triple net properties in California? You can find excellent deals on the NNN Deal Finder’s California listings page here.
However, to help you understand and navigate California’s triple net commercial property market, here are four key things to know.
1. In Which Property Types Are NNN Leases Available?
The assets on our NNN California listings span across a variety of property types, including office and industrial buildings.
NNN investors looking to diversify their investment portfolio have the luxury of exploring our retail properties galore, including pharmacy stores, fast food restaurants, medical offices, convenience stores, gas stations, and big box stores.
2. Who Are the Buyers of NNN Properties?
Private individuals own and control a large percentage of the triple net properties. However, pension funds, real estate investment trusts (REIT), and other commercial real estate organizations also buy triple net properties.
More investors are trooping into the triple net markets now than ever before. And institutional investors, in particular, are currently pursuing ownership of more extensive investments due to a general flight to stable, risk-averse cash flows.
You can buy an income property on our NNN California listings as an investor or through a 1031 exchange. A 1031 exchange will only apply if an investor is using proceeds from a sale to buy property.
Most NNN properties for sale fall within price ranges of $1 million and $30 million. However, individual 1031 exchange investors buy more of the assets within the $20 million range to avoid the financial burden of paying capital gains taxes. In contrast, institutional investors select investment opportunities by a desire for a particular internal rate of return (IRR).
3. Who Are The Sellers of NNN Properties?
When you explore the properties on our NNN California listings, it’s typical to wonder about the origin of these assets.
Although triple net property sellers range from individual investors to Real Estate Investment Trusts (REITs), commercial developers play the most significant selling role.
These sellers are often interested in constructing custom structures for delivery on a long-term net lease and selling off immediately instead of a finance-and-hold strategy.
People who practice the finance-and-hold strategy are often private investors. These individuals acquire assets and hold on to them over time, regardless of short-term fluctuations.
Another popular selling strategy in the triple net marketplace is a sale-leaseback transaction which involves corporations that elect to lease the space they currently occupy to an investor who agrees to lease the building back to them (the selling entity).
Such a transaction changes the control status of the selling company from an investor having absolute control over the assets to a mere “lessee.” Nevertheless, it frees up capital for the seller to develop or expand their business.
4. Who Are the tenants in NNN properties?
Triple net properties are known for having financially strong occupants. These occupants are often single tenants with established business experience and strong credit ratings.
Such tenants are often called investment-grade tenants. They are the ideal candidates for a triple net lease because of their creditworthiness and potential to operate their business successfully in the location.
Landlords usually use government-approved credit ratings like Moody’s, Standard & Poor’s, Fitch, and A.M. Best to summarize the tenant’s financial strength and analyze business risks.
Depending on the tenant’s creditworthiness, there are three tenant categories: national credit, regional credit, and local credit tenants.
- Organizations that generate revenue or a net worth of at least $500 million are considered national credit tenants. These organizations are often publicly traded firms that investors can charge as much as a 100 basis point premium for a long-term lease.
- Regional credit tenants occupy a large percentage of the available triple net real estate investments. These companies may or may not be publicly traded. Nevertheless, they are credit-worthy organizations with a net worth in the range of $75 million and above.
- Local credit tenants are often local private companies with no significant net worth. These companies often engage in short-term lease agreements and pay a much lower rent than regional or national companies.
You can typically find investment-grade tenants at Dollar General, CVS, Wal-Mart, Chase Bank, AutoZone, McDonald’s, and Walgreens NNN properties for sale.
These properties often have new lease terms ranging from 10 to 25 years. Of course, investors may buy and sell these properties at any point during their lease. Hence they may not realize the entire lease term.
NNN Deal Finder is your ultimate source for triple net properties for sale in Arizona. We have been working in the California commercial real estate market for decades, informing, empowering, and connecting investors to the most reliable NNN deals available.
Our experts combine their brokerage and advisory experience wealth to help investors find stable, long-term triple-net Lease investments from reputable brands.
We are always available to help you navigate all the opportunity and risk factors of every triple net asset in California that meets your investment objectives. So contact us today to get started.