Mike Taravella discusses the importance of understanding your rent roll as a buyer and an owner.
Key Information:
What is a Triple Net Lease (NNN) and what does it include?
- Where is the operational risk? With the tenant!
- Who pays the expenses? Probably the tenant!
Industrial NNN Leases
- 10-20 year leases
- Some of these tenants have been there for 30-70 years!
- Customized the building to their needs
- Typically no property management needed – 2 year inspections (as needed)
Multi-tenant NNN
- Imagine your NNN as a bond.
- What is the ability of the tenant to pay their bills?
- Is cooperate backing the lease?
- The strength of your lease is the reliability of the cashflows
Get quarterly reports and verify the “rosiness” of the picture. Always audit the financials and be aggressive with it!
Renewal Risk
- Sale leaseback – Buy from the owner-operator and then lease it back for 20 years
- Short timeframes left on the lease are more of the “value add” purchase
Debt on NNN
- CMBS Nonrecourse debt
- Big prepayment penalties
- Recourse debt
- Regional Banks
- More flexible
- Better terms
- Regional Banks
Schools, traffic count, etc. doesn’t matter! And the dirtier the better!
Find an investment group that does your new asset class already. Most people are willing to help each other!
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