Pros & Cons of Leasing NNN Properties

NNN properties are viewed by some as one of the hottest commodities in commercial real estate. Each "N" stands for the word "net" meaning that the tenant who leases the commercial space is responsible for real estate taxes, insurance and maintenance. These are a virtual gold mine for any commercial real estate owner, because there appears to be no real overhead – it appears to be straight profits and the pitch perfect investment. There is no management company to hire, no maintenance problems to fix and no liability insurance issues. From a distance, the NNN deal seems like a dream come true.

Pros & Cons of Leasing NNN Properties

Unfortunately all that glitters is not gold... and when it comes to NNN deals, there is definitely a great cause for concern. There is a latent risk in leasing your space to tenants who may appear "too perfect." The issue that is almost always overlooked is credit:

• Just because a tenant may have good credit this does not mean that they are without a significant risk.
• For example, a tenant could have excellent business credit but terrible money management. This is something that can be kept concealed.

How are NNN Deals Structured?

By structuring a NNN deal, you are leaving yourself wide open to deception. You are subtly operating as lender because you are providing nice, leasing space to a company whose success has a direct impact on your long term investment. Most companies that engage in triple net leases are places like Walgreens, Starbucks, Barnes & Noble and a host of other large companies.

• The tenant will usually sign a 25 year lease in which the rent is locked in. This presents a problem when inflation arises, because as the owner, you cannot raise the rent.
• In addition to being unable to raise rent, whatever loss that the company in which you lease the commercial space to incurs, will have an impact on you.
• Also, if there is any negative publicity for the company that you have leased to, you lease space might follow that old idiom, of being guilty by association.

Getting Legal Help

There are many things that you need to weigh out before falling head first for the hype that surrounds the triple net (NNN) deals. Weigh your options. If you are only money motivated, then this may be the deal for you, but if you want more out of your business than just money, then you need to reassess. If you are unsure of what to do, then you should consult with a real estate attorney and get him to explain your options.