I have a Lease since early 80's. Leased to 2028 NNN. Base is $15,645 with 4% year increase. What is it worth?

Excellent tenant always on time. Family owns building and the land wants to sell.
In Selling Property - Asked by Brent P. - Sep 20, 2017
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Answer(s)

Zachary S.
Broker/Agent
Cincinnati, OH

How strong is tenant's credit? What is location?

Sep 20, 2017
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Patrick K.
Broker/Agent
The Woodlands, TX

Net lease or gross lease?

Sep 21, 2017
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Marc A.
Owner/Investor
Trafford, PA

The value of the subject lease depends partly on current interest rates--which are still historically low--but mostly on what cap rates similar properties are selling for in the general area (let's say the municipality or county where subject property is located), and the property's age and operating expense ratio for obligations of lessor, not of course those covered by the NNN lease (e.g. building repairs). Assuming a range of 6% to 7% capitalization rates in the area then a value of $225-$260K. Since the 4% annual increase may exceed the average inflation rate to be expected, that tends to sweeten the deal by acting as insurance, as does usable asset depreciation.

Sep 22, 2017
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John A.
Broker/Agent
New York, NY

Hey Brent,
It was worth it if you are the tenant. At the time, when the lease was signed, it was probably a good deal for both sides. However, since the lease started in the 1980's; this has become a completely one-sided deal in favor of the tenant. The lease was based on the market Value of 1980's, I'm pretty sure (lol) the current property value does not reflect the same value of the 80's.
Since the landlord is locked into this deal, it either forces them to wait out the term ( since tenant pays on time) to replace them with a market lease or they will sell the property to the next buyer by leveraging the Potential Gross Income that the new lease will produce in 2029.
Hope that help!

Sep 23, 2017
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Jim R.
Broker/Agent
Santa Clara, CA

There is not really enough information to give a completely accurate answer. Put a 7 cap on top of the rent and you get a value of $223,500. However where is the property, how big, what is the current and future use, what is the condition, what are the landlord's current obligations towards expenses (taxes, insurance, CAM, replacements)?, whose is the tenant, what's their credit?
It is a simple and very good question, but the answer must be well thought out.

Oct 5, 2017
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