TRIPLE NET PROPERTIES JEREMY CYRIER
stability, there is little to no
management
vestment,
of
the
they
and
inare
typically newer construction.
Triple-net
properties
offer
attractive financing options
and they do work well as a
tax shelter.
The unleve-
raged returns of triple-net
properties tend to range in
the 6 to 9 percent range,
whereas when you put debt
on the property, you can
enhance your leverage up to
10 typically to 12 percent,
is because Walgreens has great credit, they’re perceived as being very stable
maybe
in their ability to pay the rent over a long period of time, and it gives that value
as
high
as
14
percent.
to the property and gives it a higher per-square-foot valuation. The other
issue there on triple-net properties is that the value is driven primarily by
Some of the downsides with
income. It’s difficult to comp these properties out on a per-square-foot basis
triple-net properties.
The
against other properties that don’t have similar credit-type rated income
price per square foot is
streams. The value also declines as the lease term shortens, so you might
typically higher than compa-
pay $6 million for a new deal today, but when you go to sell it 10, 15, 20 years
rable properties. What this
from now, it might be worth $1.5 million, and the reason for that is that as the
means
is
looking
at
that
a
if
you’re
lease term shortens the value of the property declines.
Walgreens
Pharmacy, where you might
One of the things that you need to watch out for is that you don’t overpay for
be paying $300 or $400 per
the property and that the tenant is going to stay and pay the rent for the
square foot for that building,
duration. Now, you also run into a lot of properties that are built for special
if you were to go look at a
purpose or special use. What this means is that you may have your familiar
comparable 8,000 - 10,000
Pizza Hut or Kentucky Fried Chicken where Pizza Hut or Kentucky Fried
square foot property in a
Chicken left the location, it went dark, and now it’s a Chinese food restaurant.
similar area, you might only
You may drive by and look at it, but it still looks like a Pizza Hut or Kentucky
be paying $150 per square
Fried Chicken. You’re not going to have another national brand come in and just
foot.
The reason why you
take that location over. Circuit City was another case where a lot of investors
are paying the higher price
bought those properties, Circuit City went out of business, and then they had
for the triple- net investment
these big boxes that they had to release. A lot of them were adapted by other
retailers, but there was some work that had to go in to make that happen.