Market intel
How to analyze a net lease.
A net lease is a tenant, a lease, a building, and a price. The order matters. Start with who is obligated, then read what the lease actually makes the landlord pay.
This is the framework the desk uses. It is not a value opinion, a credit rating, or tax advice.
01
Start with the obligor, not the sign
The name on the building is a brand. The name on the lease is the obligor. They are not always the same party, and the guarantor can be a third party again.
A corporate parent, a regional franchisee, and a single-purpose tenant are different credits. Read the signature block, the guaranty, and any side letter that changes either one. If the file does not name a guarantor, do not assume the parent is behind the lease.
02
Read what the lease makes the landlord pay
NNN is a label, not a complete description. Triple net usually passes taxes, insurance, and maintenance to the tenant. Roof, structure, parking, and HVAC can still be negotiated. Absolute net is the form where the tenant takes more of those items.
Find the expense clause, the CAM provision, the insurance requirement, and the maintenance schedule. A cap rate built on rent alone is not the same as a cap rate after a landlord-owned roof or parking lot.
03
Measure the term that is left, and the rent schedule
Years remaining on the primary term, the options, and who can exercise them. An option the tenant can skip is not term. A termination right, a co-tenancy clause, or a kick-out can shorten the income stream without changing the label on the offering.
Then read the rent schedule. Fixed bumps, CPI, percentage rent, and flat periods are different instruments. A flyer line is not the schedule, and a pro forma bump is not in-place rent.
04
Underwrite the real estate if the tenant leaves
A net lease is still a building on land. If the tenant does not renew, the next question is who wants the space, what it costs to make it usable, and what the land is worth without the income.
Check access, visibility, parking, zoning, physical condition, and environmental history. A fuel or auto file is not a drugstore file. The lease may transfer operating costs, but it does not transfer every owner liability.
05
Test the asking math before you trust the cap
An asking cap is the seller’s NOI divided by the seller’s price. It is not a closed sale and it is not a promise of the next buyer’s yield. If price, NOI, or cap is missing, the missing figure does not become zero.
Reconcile the three figures. Then test the debt: loan amount, rate, amortization, and the coverage the lender actually requires. A cap rate on an all-cash basis and a levered cash-on-cash return are different numbers.
06
Plan the exit before you buy
The buyer pool at exit is part of the investment. A long lease to a credit tenant, a short lease to a local operator, and a dark box do not trade to the same buyer.
If the plan is a 1031 exchange, the clock is 45 days to identify and 180 days to close. The desk can search a replacement. It does not hold exchange funds and does not compute the tax deferred.
Buyer checklist.
A list does not clear a property. It names what has to be in the file before you rely on the offering.
- The lease, all amendments, and the commencement date.
- The signature block, the guaranty, and any side letter.
- The rent schedule and the options, including who holds them.
- Taxes, insurance, CAM, roof, structure, parking, and HVAC.
- The offering’s price, NOI, cap, and term. A blank stays blank.
- The title, survey, zoning, and environmental file.
- The property condition report and the capital plan.
- The debt quote and the lender’s coverage test.
- The exit buyer pool and any 1031 deadline.
Red flags.
- Tenant
- A franchisee-only guarantee on a corporate-brand property, a recent downgrade, or a parent restructuring that is not in the offering.
- Lease
- Below-market rent, a short primary term without a clear renewal path, or a termination right that the offering does not mention.
- Property
- Deferred maintenance, an environmental history that does not match the use, or access and parking that cannot be fixed.
- Market
- A trade area losing population or employment, or new supply that changes the re-tenanting story.
- Math
- Price, NOI, and cap that do not reconcile, or a pro forma number presented as in-place income.
Questions.
- Is a higher cap rate always a better deal?
- No. A higher asking cap can be compensation for a weaker obligor, a shorter lease, a property problem, or a market the next buyer will not finance. Read the file behind the number.
- What is the first document to read?
- The lease and its amendments. The offering is a summary. The signature block, expense clause, rent schedule, and options control the income stream.
- Does NNN mean the landlord pays nothing?
- No. Roof, structure, parking, and HVAC are often negotiated. Absolute net is a stronger form, but the clause still controls.
- Can the desk tell me the tax result?
- No. A qualified intermediary and your CPA own the exchange and the tax. The desk can search a replacement and count the dates.
This page is a framework, not a value opinion, a credit rating, or tax advice. The lease, the title, the environmental file, and the lender’s terms control. Confirm the tax result with your CPA and a qualified intermediary.