Under a true triple net lease agreement, the tenant (or lessee) pays rent to the landlord (lessor), and in addition pays all taxes, insurance, and property maintenance, including structural elements such as roof repair. Triple net leases are often used in Sale/Leasebacks, a financing technique in which a business sells the property on which it operates its business, but continues to operate the business in place under the triple net lease, paying rent to the new landlord. This can be an advantageous way for a company to raise capital and/or reduce debt, and usually allowing the business to concentrate on its 'core competancy' rather than real estate operations.
Although rents are usually lower on triple net leases than other forms of lease agreements, a triple net leased property can be optimal for real estate investors seeking passive income. In a Sale/Leaseback transaction, the parties will often agree to a new lease which begins at the close of escrow and runs 15-20 years. It can also include multiple multi-year extensions. Triple net investment properties that are leased to well known brand retailers and restaurants are usually available.
From an investor’s point of view, a triple net leased investment can provide long-term passive income from a stable, credit-worthy tenant in a market that provides some liquidity. Investors must balance these advantages against the potential for flat investment performance by negotiating periodic rent increases that at minimum keep pace with inflation, by properly valuing the business dynamics that underpin the lease, and by understanding capitalization rates in the particular market segment.
Based on more than two decades of experience, Woods Loeb & Company focuses on corporate long term leased assets only with strong financial banking. "Laddering" the ownership of these assets is the preferred investment plan for many Woods Loeb & Company clients.
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