The primary aspect of certain lease structure is investment grade, long term net leases. In relation to long term however, this means the length of lease in general while the net leases means the structure of these lease obligations.
If you wish to know more about these subjects, then I recommend you to read the next paragraphs.
Number 1. Investment Grade – as a matter of fact, this lease basically refers to tenants that maintain good credit of Better Business Bureau or even higher. The rating investment is being represented by the company’s ability to repay its obligations. In line with the agency’s rating, it is how BBB is representing good credit. Most of the time, only bigger, national companies are able to maintain good credit rating.
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Both franchise and regional tenants are actually small for the rating agencies to monitor. With this in mind, it is suggested that the lease is corporate backed by parent company and isn’t just regional franchisee. There is a significant difference between strength and the credit of regional franchise owner and the corporation itself. It is the corporate parent that generally provide a better rent stability even in economic downturn while the rent stability is similar to having improved stability for the price and value of your real estate.
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Number 2. Long Term – long term most of the time means having fixed length obligation in lease term or beyond ten years. There are some advisors or brokers that might include lease option as part of fixed lease term. It is vital to distinguish between obligations and options. If for example the tenant is offered an option to renew for additional 5 years after the initial 5 year term, the lease term ought to be considered as 5 year lease with additional 5 years in option and not a 10 year lease.
As a client, you must find out the rent terms and on how long the tenant is obligated to pay because it makes a significant difference when you start considering your returns, risks, ability to acquire financing and also your ability to resell property for profits.
Number 3. Net Leases – there are two types of leases wherein it’s the tenants who are responsible for operating expenses which include the structure, insurance and the roof and these are Double Net or NN and Triple Net or NNN leases. In pure NNN lease, it is covering such cost through term of lease is called also as absolute NNN lease. Then again, there are those who call it as Triple Net that don’t include expense on roof or structure of the building. These leases are precisely known as modified NNN or double net NN leases.