NNN Leases - Posted by jim

Posted by jim on June 16, 2009 at 21:27:38:

Thanks for the advice, john. It is a big help.


NNN Leases - Posted by jim

Posted by jim on June 10, 2009 at 11:32:40:

Does anyone know:

  1. What’s the significance of a ground lease compared to a regular NNN lease? What are some of the advantages and disadvantages of each?

  2. How can I gain access to information about available financing if I don’t want to get a broker or banker involved prematurely.

  3. If you believe, as I do, that interest rates are going up in a couple of years, would it be better to wait before pulling the trigger?

Any advice on any of these three points would be greatly appreciated.


Re: NNN Leases - Posted by DMcGehee.SF

Posted by DMcGehee.SF on June 18, 2009 at 24:03:45:

Gound lease 99.9% of the time implies a NNN lease agreement. The owner simply owns the land. The tenant is responsible for the actual building and all expenses. Ground leases can be very profitable and have gained popularity in the last 10 years. One of the most obvious advantages is it provides investors with a steady cash stream with very little effort.

I’m assuming that you are asking about financing ground leases. In general, the internet is very powerful and you can find a lot of information and potential lending sources. As we all know, lenders for the most part have tightened their criteria, and the lenders I have seen involved in ground leases have for the most part exited the market. I can’t think of any lenders off the top of my head but maybe other members have.

John is right about the timing. While there is certainly interest rate risk (and many believe int. rates will increase), you also need to take into consideration the bid/ask on properties and what cap rates. Recent cap rate compression has made most of the asset classes in real estate very attractive (relatively speaking). As commercial real estate in particular begins to really experience downward pressure, opportunities unlike those of recent years will likely emerge.

Re: NNN Leases - Posted by john

Posted by john on June 16, 2009 at 15:59:03:

A ground lease is the same as most NNN leases. This means you own the ground and you are leasing it to a company that builds on it, and maintains the property and pays all 3 NNN expenses: (taxes, Insurance, maintenance)

The advantage of this kind of arrangment is that you usually have a long term tenant, and you don’t have to do any upkeep. Sit back and collect the check.

In todays market you will need a strong tenant, long term lease with at least 25-30% down before a bank will even look at the deal.

Interest rates might creep back up, but that doesn’t mean you should wait to buy that property. Now is a good time to be a buyer because you can negotiate a better price/cap rate to help you stay ahead of the game. Plus interest rates are still relatively low, so if you can lock in a financing deal now why wouldn’t you do it?

One thing to note is that if you are going to buy a NNN lease property in today’s economy make sure you buy one that is recession proof. A lot of the second tier properties, especially the sit down restaurants are having trouble. But places like Sonic (fast food) are doing well.