Essentially a single tenant bondable lease (also known as a single tenant true triple net lease or a single tenant absolute triple net lease) is a lease in which there is one single tenant and this single tenant takes responsibility for every fathomable real estate risk related to the property and is responsible for every single property related expense.
Single Tenant Bondable (True or Absolute) Triple Net (NNN)
(There is only one single tenant) (The tenant accepts all real estate risks related to the property) Tenant pays all expenses
N -Property Taxes, N –Insurance, N -Maintenance
An example of property related expenses the tenant is responsible for but not limited to are the property taxes, insurance, and maintenance (often referred to as the three nets thus the term net-net-net, triple net, or NNN). Common real estate related risks which thetenant is responsible for, but not limited to, are the obligation to rebuild after a casualty (acts of God included) or to continue payingrent should the property be condemned. Further, the tenant cannot terminate the lease or seek any rent abatements.
Lets pause and review an example of a single tenant bondable (absolute/true) triple net lease (ideally the tenant will be an investment grade credit tenant such as Walgreen’s): You as a landlord/investor just bought a brand new Walgreen’s sitting on 2 acres of land for3 million dollars. Walgreen’s does not own this building or the dirt it sits on, but has agreed to pay you the owner of the building and land $210,000 dollars a year for the next 25 to 75 years as well as paying all the property related expenses. They have also agreed to take responsibility for all the property’s real estate related risks as previously mentioned. Though Walgreen’s may not be the best example in regards to the protection single tenant absolute triple net properties provide the landlord/investor against inflation, which is about soar, many single tenant absolutetriple net properties will protect you from inflation (an example would be an single tenant absolute triple net lease that had rental escalations of 5% every 5 years).
Lets review what this inflation protection means to you: Visualize that you, the landlord/investor, just purchased a single tenant absolute triple net leased property for a term of 20 years with 5% bumps (rent escalations) every 5 years. As inflation/CPI/Cost of Living rise, so do real estate expenses (do not worry, your tenant, i.e. Walgreen’s, CVS, AutoZone, etc., has agreed to pick up the tab). All you have to do is collect the rent from them, which will increase over time.
Years 1 –5:$210,000 per year ($1,050,000)
Years 6 –10:$220,500 per year ($1,102,500)
Years 11 -15:$231,525 per year ($1,157,625)
Years 16-20:$243,101 per year ($1,215,506)
Your protection against inflation does not end here. As inflation rises, so does the value/cost/price of real estate, even dirt lots. Land brokers have been utilizing this principle for years. The 2 Acres you own along with the Walgreen’s building will be worth much more in 25 years, or even 10 years for that matter. If you have purchased in an up and coming location or market, Walgreens may want to stay your tenant indefinitely.
Gregory Garver - Commercial Real Estate Broker
Broker License# 01716531
Jun 11, 2011