Net lease commercial real estate — properties leased to a single tenant on an absolute, double, or triple net basis — is often called “bond-like” because of its income predictability and credit quality characteristics. But like all investment analogies, this one deserves careful examination.
How Net Leases Work
In a triple-net (NNN) lease, the tenant is responsible for property taxes, insurance, and maintenance in addition to base rent. The landlord’s only obligation is to own the property — all operating expenses flow to the tenant. This structure makes cash flow highly predictable: the landlord receives the same rent check month after month, with no unexpected maintenance bills or management headaches.
Who Are the Tenants?
NNN tenants are typically large national or regional retailers — pharmacy chains (CVS, Walgreens), quick-service restaurants (McDonald’s, Starbucks), dollar stores (Dollar General, Dollar Tree), automotive retailers (AutoZone, O’Reilly), and casual dining chains. These companies have investment-grade or near-investment-grade credit, stable business models, and the operational sophistication to manage their own facilities. Their credit quality is the primary driver of property value.
Valuing Net Lease Properties
Because the income stream is so predictable, net lease properties trade almost entirely on cap rate — the market’s assessment of the risk-adjusted yield for a given tenant, lease term, and location. A McDonald’s on a high-traffic corner with 15 years of lease remaining at a 4.5% cap rate may be worth $3.3M; the same property with 5 years remaining may be worth only $2.8M because the residual value (what happens at lease expiration) is much less certain.
RIYT targets net lease acquisitions in the $2–8M range where institutional competition is lower and pricing is less efficient. We focus on tenants with long remaining lease terms, contractual rent bumps (rent increases) of 1.5–2% annually, and strong sales volumes that support continued operations even if the company faces broader headwinds.