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.
I recommend you to read the next lines if you wish to learn more about these subjects.
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, it is only the big and national companies that are able to maintain good credit rating.
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Both franchise and regional tenants are small for 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. The corporate parent can provide better rent stability in midst of economic downturn while the rent stability means 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 instances to which the lease option is included by advisors or brokers as part of fixed lease term. Knowing what is obligations and options is very important. If the tenant for instance has option to renew for additional 5 years after the initial 5 year term, then the lease term has to be considered 5 year lease with additional 5 years in option and not a 10 year lease.
As a client, you have to figure out the rent terms and on how long the tenant is obligated to pay as it makes a huge difference when 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 relation to pure NNN lease which covers such costs via term of lease, it is otherwise called as absolute NNN lease. Some even 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.
