Focus on the Market: Triple Net Lease or NNN Properties
The triple net lease market includes a diverse group of property types such as quick-service restaurants (QSR), dollar stores, retail pharmacies, and single-tenant office buildings. Properties with a triple net lease – also called NNN properties — have long been considered attractive investments. These properties are generally occupied by high “credit” tenants, large strong companies unlikely to default, even in uncertain times like ours. These quality tenants favor lengthy lease terms, often with options to extend, making triple net lease properties an excellent source of long-term stable income. These properties have much to offer the thoughtful investor and are often excellent candidates for tax strategies like cost segregation.
The Capstan team can certainly testify to the utility of cost segregation in NNN properties. In a recent portfolio of quick-service restaurants, Capstan engineers were able to move an average of 57% of depreciable basis into 5-year personal property and 15-year land improvements. For a QSR with a basis of $1.3M this accelerated depreciation translates into a first-year tax savings of $218,000. Most of the deals we see involve free-standing properties. These properties lend themselves especially well to cost segregation, with associated land improvements for drive-through areas, outdoor lighting, landscaping, etc.
Retail pharmacies are also extremely good candidates for cost segregation. The Capstan team has seen between 10-20% of basis moved to personal property, and 5-25% of basis moved to land improvements. Similarly, dollar stores also see a great allocation yield, typically moving 6-12% of basis into 5-year assets, and 15-22% of basis into 15-year land improvements.
NNN lease properties are certainly not limited to these three types of facilities. Many other triple net lease property types exist, including auto parts stores, “convenience” stores, medical outpatient facilities, and single-tenant manufacturing properties.
NNN lease properties are an excellent investment, and cost segregation opportunities are the metaphorical icing on the cake. If you’re interested in learning more about NNN leases and cost seg, Capstan is here, as always. Give us a call at 215-885-7510.