Triple Net Properties and other Commercials! - Posted by Bill Taylor

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Triple Net Properties and other Commercials! - Posted by Bill Taylor

Posted by Bill Taylor on May 07, 2004 at 20:16:58:

Ray, after having been in the business for over 24 years I have been thinking of getting into some NNN deals. I have a lot of my property selling with 1031 exchanges and have funds to do some less management intensive deals. Where would you suggest I start? I have been here reading posts but after reading definitely not ready to jump yet. I would like to trade into some commercials. Do you like managing all your property within your own company or do you buy NNN and let them do it. I also am use to stealing deals and wonder if there is that opportunity in this arena. Also what kind of risk is involved after lease run out, is the best deal to sell at that time or wait for the next tenant. I am 49 years old but am looking forward to the time when I might not have to have the day to day every day.

Re: Triple Net Properties and other Commercials! - Posted by Liz Struthers

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Re: Triple Net Properties and other Commercials! - Posted by ray@lcorn

Posted by ray@lcorn on May 10, 2004 at 10:41:25:

Bill,

I have been very active the last couple of years in retail NNNs. Don’t be awed by a tenant credit rating… do your homework on the dirt with an eye toward the residual value at lease end.

We do NNNs, but also manage our own properties.

As to opportunities… the top tier of NNNs are still being priced in the 7% cap range. That’s extremely hard to make work for the kind of returns we are used to. I do see some pricing weakness in the sub-investment grade tenants (i.e. below BBB credit). Those are pricing above 9% caps and some deals with short expirations are being priced above 10%. You should also evaluate the nature of the tenant’s business model for sustainability. For example, I’m not real bullish on video stores due to the rapid advances in delivering movies and games online.

Whatever the tenant quality, the key is in the local market dynamics. That determines whether or not the tenant will renew or exercise an option to renew. Equally important is the value of the dirt and how specialized the building is for the present tenant. It won’t sell vacant, so you need to evaluate what will be required to put a new tenant in the space.

If there are any “steals” out there, my bet is they will be found in those markets that are perhaps presently distressed but with the factors in place to insure recovery. Its a gutsy play, but that’s where the action is headed.

ray

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