understanding-triple-net-leases-blog

Understanding Triple Net Leases

A triple net lease, often shortened to “NNN Lease”, is probably a term you’ve heard thrown around in the commercial real estate space.

Understanding Triple Net Leases

A triple net lease, often shortened to “NNN Lease”, is probably a term you’ve heard thrown around in the commercial real estate space. However, despite its popularity, the triple net lease structure is commonly misunderstood by many professionals in the industry.

Let’s take a closer look at what a triple net lease is exactly, how it works and explain why investors gravitate towards this structure.

So, what is it exactly?

Before we dive into any specifics, it’s important to first be aware of the two overarching lease structures in commercial real estate: a gross lease and a net lease. You can think of these on a scale, with absolute gross lease at one end and absolute net lease at the other, with a few hybrid options in between (single, double and triple net leases). Generally, an absolute gross lease requires a high level of responsibility from the investor, while an absolute net lease is the complete opposite.

understanding-triple-net-leases-blog-2

Now let’s dive a little further into the subtypes. The terms triple net lease and absolute net lease are commonly confused, and though they are very similar in the way almost no responsibilities fall onto the landlord, specific structural costs (i.e. roof repairs) may vary. Additionally, the way the tenants pay the expenses can also set the two apart. In some circumstances with a triple net lease, the landlord may cover the upfront costs on their behalf, and the tenant will provide a reimbursement later.

A triple net lease, or NNN lease, is structured so the tenant is responsible for paying the base rent, property taxes, insurance and all maintenance associated with the property, removing the landlord/investor from almost all financial responsibilities.

To compare this to double and single net leases, let’s take a look at the chart below:

understanding-triple-net-leases-blog-3

Why triple net leases are often the most popular…

It’s evident why triple net leases are attractive from the investor’s standpoint; with little to no expenses required from their end, they can truly enjoy the passive income stream. There are several additional reasons one may choose this structure as well, such as low-maintenance upkeep, consistency and reliability, and the long-term nature of the contract opens the potential for capital appreciation of the property.

And what about from the tenant’s perspective? With almost all operating expenses falling onto their side, it may seem like there’s no benefits. However, with this structure, tenants do usually pay a lower base rent to compensate for the extra costs that may be incurred.

The Takeaway

Understanding the different types of leases can be tricky, even for investors with years of experience. The most important takeaway is to take the time to understand each structure prior to signing any type of lease. Simple labels like “net lease”, for example, can be confusing when the actual terms of the lease do not align, so having knowledge of each structure will make all the difference in your success in the commercial real estate space.

If you are interested in learning more or have any questions, please do not hesitate to contact us.

Previous Articles

the-ultimate-guide-to-commercial-real-estate-investing

The Ultimate Guide to Commercial Real Estate Investing

Learn everything you need to know to assess the benefits of a commercial real estate investment and make the best decisions to get started.

Q1-2023-commercial-real-estate-investment-update

Q1 2023 Commercial Real Estate Investment Update

The commercial real estate industry has seen significant shifts and challenges over the past year, and the first quarter of 2023 was no exception.

Understanding the Waterfall Structure in Real Estate Private Equity Investments

Understanding the Waterfall Structure in Real Estate Private Equity Investments

Learn about this distribution framework used in real estate private equity investments. Understand the components of a waterfall structure…

how-much-money-do-I-need-to-start-investing-in-commercial-real-estate

How Much Money Do I Need to Start Investing in Commercial Real Estate?

We frequently have conversations where people tell us, “I want to start investing in commercial real estate, but I’m not sure if I have the capital.”

benefits-of-owning-commercial-property-over-residential

Benefits of Owning Commercial Property over Residential

While both types of real estate investments have their benefits, investing in CRE can be more advantageous for several reasons.

The Revolution That Wasn’t

How has technology impacted modern finance and created an asymmetrical relationship between Wall Street and individual investors? In this episode, we speak with Spencer Jakab, the author of The Revolution That Wasn’t and editor of the Wall Street Journal’s Heard on the Street column.

Tax Savings Secrets: How Cost Segregation Analysis Can Save You Money

How can cost segregation analysis help real estate investors maximize their returns? In this episode, John Hanning explores the potential benefits of cost recovery studies and depreciation.

What is a Family Owner’s Manual and Do I Need One?

It’s time to make sure you and your family are set up to continue success for generations to come. Today, Josh Kanter shares his journey transitioning from practice as a transactional attorney to reorganizing his family’s activities under a single-family office.

Key Characteristics of High-Performing Family Offices

Are family offices becoming more popular? In this episode, Robert Daugherty dives into the importance of having a functional family office, and the role of the Chief Learning Officer in it.

Excelsior Capital

A real estate private equity firm that owns and operates high quality multi-tenant office assets in emerging secondary markets.

Interested in learning more about Excelsior's investment opportunities?
excelsior-capital-logo-icon-white

Disclaimer

Under no circumstances should any information presented on this website be construed as an offer to sell, or solicitation of an offer to purchase any securities or other investments. This website does not contain the information that an investor should consider or evaluate to make a potential investment. Other materials related to investments in entities managed by Excelsior Capital are not available to the general public.

Excelsior Capital

104 Woodmont Blvd, Suite 203
Nashville, TN 37205

Contact Us