5 NNN Retail Properties Available For Under $4 Million
The current investment landscape is challenging.
The spread between retail property transaction capitalization rates and the effective yield on BBB-rated corporate bonds is currently hovering around just 0.75%, significantly below the prior 15-year historical average spread of 2.9%, according to CoStar, the publisher of LoopNet. Impacted by rising interest rates, this tight spread is a contributing factor to the slowdown in transaction volume across all asset types so far in 2023.
But even with the impact of rising interest rates, triple-net lease (or NNN) retail properties remain a top draw in LoopNet searches.
No matter the economic cycle, there are still benefits to owning triple-net property. Some of the benefits of triple-net properties include:
- Long-term leases. Triple-net properties usually have long-term leases (10-20 years) with high-quality, often national retail tenants. This provides investors with a reliable income stream.
- Passive income from minimal management. True triple-net tenants are responsible for paying not only rent but also property taxes, insurance and maintenance expenses, leaving the landlord with very few responsibilities. This makes triple-net properties an attractive option for those seeking a more hands-off approach to real estate investing.
- Inflation hedge. Triple-net leases often have rent escalations, providing investors with a built-in hedge against inflation.
- Lower risk. Because the tenant is responsible for property maintenance and expenses, there is typically lower risk associated with triple-net properties compared to other types of real estate investments.
For investors looking to cash in long-term, LoopNet surveyed triple-net properties available on the market today under $4 million. This sampling features a mix of national retailers across the country, including quick-service restaurants, auto shops and dental practices.
$2.79 Million – Newly Built, Drive-Thru Chipotle
6501 Monona Drive, Monona, Wisconsin
Popular national tenant? Check.
New construction? Check.
Drive-thru “Chipotlane?” Check.
This Chipotle was built last year in a rapidly growing suburb outside Madison, Wisconsin, home to the state capitol and the University of Wisconsin. About 15 minutes from campus, the site reports average daily traffic of 126,000 vehicles. There are 15 years left on a corporate net lease to Chipotle.
All these factors make the property attractive to 1031 exchange buyers, particularly those from more expensive coastal markets, said listing agent Vahe Nokhoudian of San Francisco-based Fisher James Capital. 1031 exchanges are part of a provision in the tax code allowing sellers of commercial real estate to defer real estate taxes if they instead opt to reinvest the sale proceeds into a similar or “like-kind” property.
The property would trade at a 4.5% cap rate at its current list price of $2.79 million (or $1,156 per square foot).
“The cap rates are more competitive” in Midwest markets such as Madison, Nokhoudian said. “It’s the same kind of (tenant) credit, but you’re not paying an egregious premium.”
The landlord is responsible for the roof and structure of the property.
$3.5 Million – New Dental Office
12517 Yellow Bluff Road, Jacksonville, Florida
This 4,260-square-foot dental office, built earlier this year in Jacksonville, is leased for 10 years to Heartland Dental, the largest dental support organization in the country. There are 10% fixed rental increases every five years in the initial lease term, plus extension options.
The property has a net operating income of $170,400 and would trade at a 4.85% cap rate at its current list price of $3.51 million (or $825 per square foot).
The dental office sits on an outparcel in a Publix grocery-anchored shopping center in an affluent part of Jacksonville, where the three-mile average household income is $104,514. Population in the five-mile area is expected to grow by more than 8% over the next five years.
$3.5 Million – Downtown Philly Storefronts
432-436 South Street, Philadelphia
This fully leased 7,500-square-foot building has street exposure on three sides at the corner of 5th and South streets in downtown Philadelphia, a few blocks from local landmarks such as Independence Hall and the Liberty Bell. Current tenants in the building include Sprint.
The two-floor brick building was first built in 1900 and features a mural on one side. A listing for the property touts “wide open, usable space” with high ceilings. There are three, 2,500-square-foot spaces in the building. The property reports a net operating income of $119,625 per year and would trade at a 3.42% cap rate at its list price of $3.5 million (or $467 per square foot).
$2.86 Million – Auto Repair Shop
6301 Independence Parkway, Plano, Texas
Auto garages, known for their insulation from economic downturns, are another popular draw on LoopNet. This 5,250-square-foot site in Plano, Texas is subject to an absolute 20-year triple-net lease that commences at the close of escrow. The tenant is Brakes Plus, a growing full-service auto repair chain with locations in Texas, Arizona, Colorado, Nebraska, Iowa and Wyoming.
The lease includes 5% rental increases every five years during the 20-year lease term. The initial rent is $150,000 per year. There are also six, five-year renewal options at the end of the initial lease term. As an absolute triple-net lease, there are zero landlord responsibilities for an investor.
The property would trade at a cap rate of 5.25% at its current list price of $2.86 million (or $544 per square foot).
$2.3 Million – Santa Barbara Supercuts
726 State St., Santa Barbara, California
Supercuts, a national barber chain, has operated at this location in downtown Santa Barbara for more than 40 years. Forty percent of the 2,400-square-foot retail property on State Street is leased to a well-known local iron fabricator that has occupied the space for more than 30 years. Supercuts is a true triple-net lease with no landlord obligations, while the landlord is responsible for the roof and structure of the iron fabricator. Leases for both tenants are set to expire in 2025 but have renewal options.
Santa Barbara, known for its beautiful beaches, is an affluent and vibrant tourist destination, with 7.2 million visitors annually. State Street is the town’s main retail strip, which runs perpendicular to the beach. City officials recently made State Street pedestrian-only in a bid to boost foot traffic.
The net operating income on the property is reported at $115,081. The building would trade at a 5.01% cap rate at its current list price of nearly $2.3 million (or $963 per square foot).
Streetfront retail on State Street doesn’t come to market often in Santa Barbara, said listing agent David Swerdlow of CBRE. The only reason this property is for sale is because of a death in the ownership family.
