What Does Triple Net (NNN) Mean?
The Popularity of NNN Deals
Single-tenant, triple net (NNN) deals have become one of the most prevalent and often traded types in commercial real estate. However, despite the popularity, triple net deal structures are still commonly misunderstood by many commercial real estate practitioners.
Triple net deals usually offer new, or nearly new real estate and are generally secured by long-term leases to national tenants. In addition to rent, an NNN tenant is responsible for operating expenses, or the “net” amount of three costs: real estate taxes, insurance and maintenance. (In other commercial property transactions, these costs would usually be the responsibly of the owner or landlord.)
NNN deals are appealing to all types of investors because they offer stable cash flows, attractive financing and unique tax benefits.
Characteristics of a Triple Net Investment
NNN investments are usually secured by long-term leases of 10 to 20 years and offer low risk with a steady monthly income stream. Typically, the long-term tenant is responsible for all maintenance and upkeep of the property with little, if any, responsibilities left to the investor. This makes NNN deals an attractive option for investors who lack time or experience to manage commercial real estate or who may be looking for a better return than is available in their specific market area.
NNN investments vary in price points from as little as $500,000 for a property leased by a small company or franchise up to $20 million for big-box retailers and similar properties. This investment type can include office buildings, malls, industrial parks or freestanding buildings.
Cap rates for NNN deals typically start at 5% for the highest-rated tenants with choice real estate and range up to 9% for tenants with lower credit ratings and non-traditional lease structures.
The Triple Net Benefits
NNN deals offer many benefits to investors, including providing a long-term solution to allow investors to meet their goals despite short-term market instability. The primary benefits that NNN deals should include are:
- Long-term lease secured by stable, credit tenant with national recognition
- Minimal management responsibilities
- Clear description of who is responsible for each expense
- All expenses should be payable by the tenant
- Scheduled rental increases over the life of the lease
- A clear understanding of any lease options
- An assessment of the underlying real estate and its residual value and usefulness at the end of the primary term
Challenges Associated with NNN Leased Properties
Just like all other investment types, there are certain risks and disadvantages that go along with NNN leased properties. They generally do not offer much of an opportunity for short-term profit, and they are less liquid than other types of investments. There is also the remote possibility that the tenant could go out of business, be acquired or merge with a competitor, leaving the building dark.
Even if the tenant has strong credit, the type of business may affect investment value. For instance, a general-purpose use—where tenant improvements are easily convertible to another tenant’s needs—is more desirable than a special use building with limited utility for future tenants. Fast food uses are one example of this issue, but certainly not the only one. Despite these possible risks, NNN investments offer a unique combination of market advantage and financial reward that makes them attractive to many investors.
If you want the best return available in your market, then you should consider this type of commercial real estate investment. Please feel free to reach out to me or one of our commercial advisors for questions or more information.
Ben Graham, CCIM can be reached at (225) 329-0268 or bgraham@stirlingprop.com.
Part #3 – Retail Site Selection for Drug Stores
Drug Stores Have Unique, Evolving Characteristics
Around the turn of the century, the Drug Store War for “Class-A” corners erupted across the Gulf South. Between the Rite Aid and K&B merger, as well as CVS and Walgreens aggressively competing for market share, the race was fast and furious. I distinctly remember sale prices exceeding $20/foot for the first time, and “Coming Soon” signs appearing on corners on the regular. Most of the drug stores that we frequent today were likely built between 1998-2006.
Unlike convenience stores that rely on traffic counts or quick-serve restaurants that benefit from both traffic counts and proximity to customers, drug stores focus more heavily on population or “warm bodies.” And, even though location and access are important, drug stores can be considered a “destination retailer.”
The reason being, although a large portion of a drug store’s customer base picks up their prescriptions during their P.M. commute, drug stores don’t rely on the impulse consumer dollar.
Extensive studies have shown (in a market size like Baton Rouge, LA) most script fillers will use the drug store located within a five-mile radius of their home.
Further, one-third of a drug store’s gross revenue is generated during off-peak hours, attributed to homemakers and retirees shopping during the day, patients picking up scripts after doctor’s visits, as well as their weekend customer base.
However, with the amount of capital that major drug stores like Walgreens, CVS and their competitors have invested in their marque locations, they in turn, usually have higher overhead and product pricing.
At a time when families have less disposable income and higher healthcare and prescription costs, more and more consumers are starting to sacrifice convenience for cheaper pharmacy alternatives.
Grocery-store pharmacies such as Walmart, Kroger and Sav-On, as well as discount prescription providers, online pharmacies, wholesalers and health clinics have seen a spike in sales, posing a threat to the retail drug store industry.
While existing population is still a key factor in the drug store site selection process, drug stores have started purchasing sites in outlying/rural areas where new home sales, multifamily communities and spikes in population are projected.
We are also seeing drugstore chains looking at more unique locations than they have in the past, capitalizing on mall shoppers, students, office building and hotel users. Some are incorporating smaller footprints with more curated product offerings or expanding in-store healthcare services to enhance their brick-and-mortar customer experience.
As consumer behavior continues to evolve, so will the characteristics and site selection needs of retailers, including drug stores.
Working with a site selection specialist that knows the market trends and projected growth patterns can be an invaluable asset for any retailer looking for sustained growth in a market.
Stay Tuned for Collier’s Next Post!
If you are interested in a site selection specialist, or for questions regarding your commercial real estate property, contact J. Collier Thornton at (225) 926-4481 or cthornton@stirlingprop.com.
Stirling Properties Celebrates the Grand Re-Opening of Cornerview Plaza in Gonzales, Louisiana
Redevelopment of former Kmart into multi-tenant retail center.
Jackie Baumann, Chief Engineer, City of Gonzales; Peyton Gallup, Business First Bank; Sandy Menetre, Business First Bank; Councilman David Guitreau, City of Gonzales; Councilman Tyler Turner, City of Gonzales; Councilman Neal Bourque, City of Gonzales; Scot Byrd, CAO/City Clerk, City of Gonzales; Councilman Kirk Boudreaux, City of Gonzales; Mayor Barney Arceneaux, City of Gonzales; Steve Zito, Zito-Russell Architects; Grady Brame, Stirling Properties; Tommy Chisolm, Zito-Russell Architects; Ryan Juneau, Stirling Properties; Townsend Underhill, Stirling Properties; Willie Robinson, Ascension Realty of Louisiana; Kate McArthur, President & CEO of Ascension Economic Development Corp.; Barker Dirmann, President & CEO of Ascension Chamber of Commerce; Justin Lomax, Brasfield & Gorrie; David Laizer, Duplantis Design Group; Jacob Green, Brasfield & Gorrie
Stirling Properties and Gonzales-area community leaders celebrate the grand re-opening of the newly renovated Cornerview Plaza located at Airline Highway and Cornerview Street in Gonzales, Louisiana. A formal ribbon-cutting ceremony was held with Honorable Barney Arceneaux, Mayor of Gonzales; Councilman Kirk Boudreaux, City of Gonzales; Councilman Neal Bourque, City of Gonzales; Councilman Tyler Turner, City of Gonzales; Councilman David Guitreau, City of Gonzales; Kate McArthur, President & CEO of Ascension Economic Development Corp.; Barker Dirmann, President & CEO of Ascension Chamber of Commerce; Grady Brame, Executive Vice President with Stirling Properties; and Townsend Underhill, President of Development with Stirling Properties.
“What a wonderful day for Gonzales! We are all so excited to be here today at this beautiful new site. Not only does this redevelopment bring exciting, new-to-market retail stores for our community, but it also means more jobs for our people, a much better tax base for our folks, and, let me tell you, that means everything to Gonzales. We appreciate you all being here with us today to celebrate. Thank you to Stirling Properties for facilitating this project and working with us to bring it to fruition,” said Mayor Arceneaux.
Stirling Properties recently redeveloped and re-tenanted the 124,000-square-foot retail center.
Marshalls, ULTA Beauty, Ross Dress for Less and Five Below backfilled the 40-year-old, 86,000-square-foot former Kmart space into a fully renovated, upscale retail center. A 3,500-square-foot outparcel building was also constructed on the property for Aspen Dental. The new retailers join anchor-tenant Rouse’s Market and AT&T. An additional, 2,800-square-foot retail space is available for lease.
Construction on the site commenced in early 2019, and most of the retailers are open and operating. ULTA Beauty is on track to open in early November. Ryan Pécot, Senior Retail Leasing & Development Advisor with Stirling Properties, worked on behalf of the landlord in securing the tenants for the center. Stirling Properties serves as the Asset Manager and exclusive leasing agent of the property and is overseeing the redevelopment project. The company will also continue daily property management operations.
“Stirling Properties is excited to celebrate the grand reopening of Cornerview Plaza and to officially welcome these highly anticipated tenants to the Gonzales market. We are proud to have been a part of this unique development project—reestablishing Cornerview as a major shopping destination and creating economic growth for the surrounding Ascension community,” said Grady Brame, Executive Vice President with Stirling Properties.
“Economic impact trickles through the whole community. New economic announcements like this show that people are coming here, they are shopping here, they’re buying houses here. Every single new project builds a stronger, better economy—not only for the City of Gonzales but the entire Ascension Parish. We hope projects like this will serve as an impetus to even more development in our community,“ said McArthur.
“Thank you for investing in this community, the City of Gonzales and the Parish of Ascension. Thank you to our Mayor and community leaders for your vision and for putting together a comprehensive plan to move this city forward. It shows that we are not just looking at tomorrow, we’re looking 5, 10, 20 years in the future, and that is critical for sustained success,” said Dirmann. “Economic development wins like this directly influence the quality of place in this community and quality of life for our citizens.”
Stirling Properties has developed/redeveloped nearly $2 billion of commercial real estate across the Gulf South region, totaling more than 23 million square feet, including retail, office, industrial, healthcare, residential and mixed-use properties. For leasing information, contact Ryan Pécot at 337.572.0246 / rpecot@stirlingprop.com.
Walk-On’s Bistreaux & Bar Coming to Hammond Square
Stirling Properties announces that Walk-On’s Bistreaux & Bar is coming to Hammond Square shopping center in Hammond, Louisiana. This marks the 3rd Northshore location for the award-winning, family-friendly restaurant and bar.
Walk-On’s Bistreaux & Bar local franchisee DBMC Restaurants will close on the purchase of 1.35 acres of property located at C.M. Fagan and Hammond Square Drive, as part of the redevelopment currently underway on the northeast side of the shopping center. The restaurant will occupy approximately 8,025 square feet of space. Construction is expected to commence by the end of 2019, and the restaurant plans to open in the summer of 2020. DBMC Restaurants is a veteran restaurant group that currently operates three restaurant brands across six states and is one of the largest franchisees of Walk-On’s.
Rhonda Sharkawy, Stirling Properties’ Senior Retail Leasing & Development Advisor, represented the property owners in the sale.
The popular sports-themed restaurant started in Baton Rouge by two former LSU basketball walk-ons has thrived over the years and expanded with more than 100 locations planned across 15 states. Currently, there are 18 Walk-On’s restaurants operating in Louisiana. Hammond Square marks the 3rd location for the Northshore region, with existing restaurants at Stirling Properties’ River Chase development in Covington and Fremaux Town Center in Slidell.
Stirling Properties previously announced the demolition of the former Sears and Rite Aid buildings at Hammond Square to make way for a multi-tenant retail redevelopment project. This summer, the company announced that Michaels, HomeGoods, Five Below and PetSmart would occupy the space and join the tenant lineup. Buildout of the new space is underway and expected to be completed in the first quarter of 2020, with the retail tenants anticipated to open in the second quarter of 2020. Hammond Square is also developing a two-tenant building in front of the former Rite Aid that will house additional restaurants, including Five Guys. This building is expected to be completed in the summer of 2020.
Hammond Square is Tangipahoa Parish’s premier shopping destination, located on approximately 100 acres at the northwest corner of Interstate 12 and US Highway 51 Business (SW Railroad Avenue) in Hammond, Louisiana. It is the 2nd largest open-air center in Louisiana encompassing over 902,000-square-feet of more than 40 national and local retailers, shops and restaurants, including Dillard’s, Target, The Home Depot, JCPenney, Academy Sports+Outdoors and AMC Theatres. Stirling Properties redeveloped Hammond Square and currently manages and leases the center.
For more information on Hammond Square, visit www.hammondsquare.com or facebook.com/hammondsquare. For leasing and sales information, contact Rhonda Sharkawy at (504) 620-8145 or rsharkawy@stirlingprop.com.
Stirling Properties Hires Steadman Bethea as Advisor
Stirling Properties is pleased to announce that Steadman Bethea has joined its commercial real estate team as an Advisor. He will work from the company’s Mobile, Alabama, office located at 1 St. Louis Street, Suite 4100.
Before joining Stirling Properties, Steadman worked as a Real Estate Advisor with 30A Realty located on the Gulf Coast of the Florida Panhandle, where he was a member of one of the top-performing teams in the market.
He has also held the roles of analyst and account executive with Walton Funding, a private mortgage company. Here he garnered knowledge and experience with lending on investment properties and commercial loans, a skillset he uses to help guide his clients in making smart real estate decisions.
A native of Montgomery, AL, Steadman graduated from Samford University with a Bachelor of Science degree in Business Administration and Finance. He holds commercial real estate licenses in both Florida and Alabama.
He and his wife reside in Fairhope, AL, where he is a member of the Baldwin Commercial Exchange Club and an active volunteer as a YoungLife Leader.
Steadman Bethea can be reached at (850) 467-1047 or sbethea@stirlingprop.com.
New Rouses Market-Anchored Retail Development Coming to Lake Charles, Louisiana
Anticipated construction completion in the spring of 2020.
Stirling Properties commercial real estate company is pleased to announce that a new Rouses Market-anchored retail development is coming to Lake Charles, Louisiana. Developed by the Eisenberg Company, the roughly 90,000-square-foot development will be located on 10.25 acres on Nelson Road at Ham Reid Road in South Lake Charles. Eisenberg Company recently completed construction of its first Rouses Market-anchored shopping center, Arlington Marketplace, in Baton Rouge on the corner of Lee and Burbank.
Anchor-tenant Rouses Market will occupy approximately 44,000 square feet of retail space. Construction of the state-of-the-art, ground-up grocery store commenced last week, and it is expected to open in the fall of 2020. This marks the 3rd Rouses Market location for the Lake Charles area.
Rendering courtesy of Rouses Facebook
Stirling Properties’ commercial advisors are serving as the listing agents for the retail project. Justin Langlois, CCIM, Ben Graham, CCIM and Seth Citron are working diligently to fill the remainder of the property and bring new tenants to the market. Additional pad sites and shop space is available for sale, lease or build to suit.
“This exciting new Rouses Market-anchored retail development is centrally located within the fastest growing area in the region. Some of our ideal tenants for the space include quick-serve establishments, soft goods and service providers, and restaurant options,” said Citron. “Lake Charles is in the midst of an economic boom resulting in new job growth and subsequently population growth. We expect to see new companies and major retailers entering and expanding in this market—and we look forward to welcoming them very soon.”
Stirling Properties is located at 1400 Ryan Street, Suite B in Lake Charles, La. For sales and leasing information, contact Justin Langlois, CCIM at (225) 329-0287 / jlanglois@stirlingprop.com, Ben Graham, CCIM at (225) 329-0268 / bgraham@stirlingprop.com or Seth Citron at (337) 572-0273 / scitron@stirlingprop.com.
