Single Tenant Net Lease

Single tenant net lease (STNL) properties are a popular option, particularly for investors doing a 1031 exchange, who perhaps no longer want the day-to-day burden of being a landlord.

STNL properties are usually free-standing, specialized buildings leased to familiar name brands (such as Starbucks or Walgreens) under long-term triple net (NNN) leases.

Ultimately, single tenant net lease investments are attractive investments because they require limited ongoing landlord responsibilities, and they provide the owner with a long-term predictable stream of income.

“net lease” is a lease structure wherein the tenant is responsible for paying not only a base rent, but also some or all of the operating expenses related to property ownership. Net lease structures can be single net, double net, and triple net leases, with the term “net lease” often being to encompass all of the aforementioned.

NNN leased investments are typically leased to one single tenant and are therefore commonly referred to as STNLs or Single Tenant Net Leases. A NNN lease investment can however have more than one tenant, although in such a scenario, it would no longer be considered an STNL investment.

The term “Net Lease” is used loosely in the net lease industry, most commonly referring to a triple or double net lease. It is important to note however that there is a definite distinction between a triple net and a double net lease deals even though many in the industry mistakenly use the term “Net Lease” to describe both.

The single tenant investor’s objectives can range from simply looking for less involvement in management, to stable cash flow in conjunction with preservation of capital. Whether it is an investor looking for a suitable replacement property to complete a 1031 tax-deferred exchange, or simply an investor looking to invest in investment properties with minimal risk NNN investments can be a fantastic solution.

Although all of these objectives can be met through triple-net-leased investments, the variations in different triple-net-leased properties need to be considered as well.

Because definitions of triple-net leases differ, the investor must be aware of the different structures falling under the “net lease”, including what the lease should and should not include. Also the investor must remember that the term is widely misused in brokers’ marketing materials. With a better understanding of the overall structure however, the investor may discover that a triple-net lease does not meet his objectives after all.

Triple Net leases call for the tenant to be responsible for all maintenance expense related to the property, and typically trade at a lower cap rate than do double net leased investments. On the other hand, double net leased investments typically trade at a slightly higher CAP rate than triple net leased investments since the landlord takes on some additional expenses, and ultimately risk (in Double net leases, the landlord  is often times responsible for Roof and Structure).

Investing in a Single-Tenant NNN property has some great benefits, but is not for everyone. Trying to identify the best single-tenant investment is very different then the process involved in finding other commercial real estate investments.

The Single Tenant Net Lease and NNN investments may not be right for everyone, but they are a fantastic choice for many investors. To recap, some of the most positive attributes are:

  • Single Tenant Net Lease and NNN investments offer stable and predictable cash flow.
  • STNL and NNN investments are typically backed by credit rated tenants.
  • They require minimal management and oversight.
  • They can be easily leveraged depending on the quality of lease and location of asset.
  • STNL and NNN Investments are often located in commercially vibrant, high-traffic areas.
  • They reduce unpredictable or rising expenses.
  • STNL and Triple Net Investments are a good stepping stone into investment real estate
  • They provide the ability to diversify the investor’s portfolio.