Understanding NNN Leases Part 2

How do we control cost?

If your looking at this post, you have probably experienced the unexpected rent increases as a business owner.  Tenants do not want the volatility or extra burden that a NNN lease brings to the table.  Here are a few ways to control NNN cost.  Prioritizing NNN in your negotiation strategy is the best opportunity.  Every Landlord has different concessions that could be made to help control cost.  We have negotiatied NNN caps in some cases, where others we implemented stronger controls that govern how these cost would be allowed to impact our clients.  Have options, while NNN buildings are on the rise, there are more favorable lease structures in most markets.  Make sure that you have looked at every option that fits your parameters first before you really bear down on a NNN building.  We perform a detailed lease analysis projecting the potential impact of NNN cost so they know what to expect.  This year, we were able to anticipate a major insurer in the market leaving and “adjust” rents to compensate for this change so I client knew what to expect at the space.  Auditing the Landlord is also an option that many tenants do not take the opportunity to exercise until there is a problem.

Is it cheaper to have a Gross Lease or a NNN Lease?

A NNN lease is not necessarily more expensive than other lease types, but it is more burdensome giving the tenant fewer options to stabilize the rent rate through the years.

Overall, which is better for my business?

I tell clients all the time that a NNN is a lease type, not a property.  There are several factors that drive tenants to selecting a property and the lease structure is an important factor, but not the only factor.  For this reason, we sit down with clients first and assess, then rank what factors are most important during the acquisition process then we execute a strategy based on what is important to them.  NNN leases don’t need to be avoided, just properly understood, and controlled.

When can I expect to come across a NNN Lease?

NNN leases are more and more prevalent in commercial property types, but mainly in Class A and B Office Space, Industrial, and Retail properties in major markets.