Posted by Don M on December 09, 2004 at 17:07:45:
I agree. This is the big bonus for Walgreens. They are not stuck with
the real estate, you are. As the neighborhood or traffic patterns
change, they will be free to move at the end of the lease.
-Don M
investing in triple net lease properties - Posted by sam
Posted by sam on December 04, 2004 at 01:06:01:
Im gathering information in order to learn about triple net lease properties with popular brand name companies. i.e fast food franchise, walgreens, autozone, etc.
Im particualarly intrigued by them because they appear not to need much management and the cashflow is very consistent.
What should I look for in purchasing these properties?
Should I expect to pay 10 or 20% down?
Even if I have enough for a downpayment, how important is good credit in order to secure a loan?
Pros/cons?
Im new to this arena so any advice you can give is appreciated
sam
Re: investing in triple net lease properties - Posted by Mark Reynolds
Posted by Mark Reynolds on December 08, 2004 at 17:59:14:
Well a few points here.
Most of the decent NNN properties are currently trading at cap rates pretty close to the best lending rate you can reasonably expect to get. Yes the lender will care a lot more about the tenants credit than yours but leverage doesn’t help you here because there is no rate “premium”.
I think Carlos is right. If cap rates rise (and they are almost certain to do so given that they are at historic lows) the value of these properties will decline from the current high.
If you want to make some money in NNN you essentially have to take the development risk, i.e. buy the land, find the tenant, build the building, sell it to somebody else at these cap rates. I have a vacant lot on a busy corner if you are interested. I’d joint venture as well.
Re: investing in triple net lease properties - Posted by Carlos
Posted by Carlos on December 04, 2004 at 08:25:16:
Sam,
I don’t have any actual experience with these, so I can’t answer most of your questions. I will say, however, that buying NNN properties now strikes me as buying high so you can sell low. That’s why I haven’t done it, even though I looked into it quite a bit.
What I mean by that is that cap rates for these types of properties are in the 7% to 8% range, with a few higher and lower. My view is that cap rates are going to go up, which means that the value of what you buy will go down. If cap rates go up by 2%, and you go from 8% to 10%, you’ve lost 20% of your value if you go to sell.
Now, if you don’t intend to sell any time soon, but simply want to just hold the property for 20 years or so, that’s a different story. You’ll get a higher return (at least now) than you can get in most other similar types of investments, and you’ll own the property free and clear in 20 years, or whatever the lease term and extensions add up to. And, you’re right, there’s little or no management hassles or work, so it’s just basically depositing a check every month.
It’s just a matter of deciding what your objectives are, and then seeing how this type of property stacks up against them, when the cap rate risk is included.
=Carlos=
P.S. If I WAS going to do this now, I would look hard for something with a cap rate in the 9 - 10% range.
Walgreens - Posted by Greg¶
Posted by Greg¶ on December 05, 2004 at 20:43:43:
I don’t know anything about the firm, other than that they are growing like a weed. Near me (Philadelphia), new Walgreens stores seem to be appearing all the time. I just went back to an area where I grew up. We used to hang out at a Denny’s…you guessed it, there’s a Walgreens there now.
Before you buy a property for NNN, consider where you will be if several years from now the tenant turns out to have overextended itself and files for bankruptcy.
Re: investing in triple net lease properties - Posted by Don M
Posted by Don M on December 04, 2004 at 12:09:22:
I’ve looked into them quite a bit but never could pull the trigger. It seems like most of them are priced for perfection. I came across a file folder I put together in 2000, and the cap rates were much better than today. If you would have bought then and wanted to sell today, you’d make great money. But as Carlos said, if you buy today and cap rates rise and you want to sell, you take a hit.
Also, you have to assume that down the road the 20 year old Walgreens building is going to be worth more than today. Maybe, maybe not. Will Walgreens renew the lease, or will it go dark and now you have to do something?
Most of the buyers are getting into them through 1031 tax-deferred exchanges. So because they are deferring taxes, the deal is worth more to them and they in effect are bidding up the prices to a point where a “regular” investor has more downside than upside.
The brokers in these tell me that inventory is scarce. “I wish I had more to sell!” So it is a seller’s market. The whole thing reeks of a bubble to me.
At 9% you can get a Dollar General store. They have a barely investment grade credit rating. And you’ll be buying a very cheap steel building that in 20 years will look like, well, a cheap 20 year old steel building.
As you can tell, I’m not that excited about it any more. I think it would be better to network and find deals where you could be a passive investor. They are mentioned here on CRE, and of course you have to be sure of the people and the deal, so it’s not as simple as buying a NNN long-termed leased to an investement-grade credit national tenant. But there are different kinds of risk either way, and I’m leaning towards investing into projects where I can deal face to face with a person or group, see what’s being done, understand the project, etc. etc.
Hope this helps?
-Don M
Re: investing in triple net lease properties - Posted by sam
Posted by sam on December 04, 2004 at 12:06:19:
Thanks Carlos!
My main objective would be to hold properties for cashflow; I wouldnt be looking to sell them any time soon. Thanks for the thoughts cap rate wise – Ill take them into consideration.
The two biggest things I want are consistent cashflow and low maintenance.
Any thoughts from anyone else?
Re: Walgreens - Posted by Randy
Posted by Randy on December 09, 2004 at 09:48:37:
The Wallgreen deals I have looked at were way over priced – not based on the lease, but by the actual building you will be stuck with, if somehow you loose the tenant (think Kmart).
Re: investing in triple net lease properties - Posted by tom
Posted by tom on December 05, 2004 at 10:26:45:
You might want ok look at buying mobile notes/becoming a hard money lender. these methods are more consistent with your objectives.
hedge funds are also an option…
tom