A client approached us with $10MM cash to invest for his family trust. He had just exited from investments in gross lease medical office. The client had lost money from investing in a medical office building. First, the client had used a gross lease model, which put the onus of actively managing his property on him. Second, the property manager the client had contracted was poorly maintaining the property, nor, it turned out, was the property manager’s tenant selection appropriate, such that tenants went bankrupt, or left their leases prematurely. All of this proved too much for our exhausted and older client, who preferred to take a hit to his investment rather than re-arrange the management and tenancy.
After understanding his lifestyle, family, financial and tax goals, we arrived at the conclusion that an absolute NNN net lease property with minimum tenants would be the most appropriate for his family trust. The client also wanted to achieve a depreciation goal for tax reasons, and wanted to balance this objective with using a NNN ground lease structure as much as possible so that the client would have higher appreciation in value with below market rent and price. Looking to the long term, a triple net lease property would also appreciate giving a solid “balloon” to his investment. (NNNIG Success)Further, an investment-grade, single tenant under this NNN lease would likely continue to renew the optional terms after the initial, long, lease term expired.
Having settled on this STNL NNN and ground lease mandate, some of the team immediately began interrogating our own proprietary databases. Other Triple Net Investment Group team members simultaneously reached out to our national broker networks, focused on identifying a few, choice, newly constructed, properties with very low rent, long leases and low price points in densely populated and higher income areas – all these factors being well known as the “holy grail” of (NNNIG Success) NNN investing!
Since the team had also reached out to some retail developers with good reputations and clientele, we were first, able to identify a NNN ground lease for a 20,000 sq. ft., newly constructed, Aldi with an Aldi corporate guarantee! The purchase price was fair at $3.2MM, with a reasonable rent, and a 20-year new initial, lease term with 10% rent escalations every five years.
Our extensive search also produced a second gem: new construction from another developer contact known to us, tenanted by Chick fil-et with a 20-year, initial ground NNN lease, with excellent sales projections and traffic counts, with below market rents, for $3.6MM.
Last, since the client needed a greater amount of depreciation for tax purposes, the Triple Net Investment Group team identified an existing, absolute NNN 7-11 with gas station, which renewed its initial lease for 15 years, installing new gas tanks, for a price of $2.5MM. With this last deal, our client also achieved his depreciation goal for tax purposes – 15 years’ worth of accelerated depreciation!
Undoubtedly, the team’s perseverance, broker and developer relationships paid off handsomely for our client. Remember, we began with learning our client’s objectives, and with those firmly in mind, the Triple Net team filtered through a multitude of properties and relationships to arrive precisely at our client’s needs! This is the way we get results for our clients.
Call Robert Gamzeh and the Triple Net team today at 202-361-3050 for a complimentary consultation on your next NNN deal.