Michael Emilio

From realstreetEX:

Are you buying or selling a NNN investment?

If so, make sure you analyze the value.

What?

Let me explain.

When buying or selling a NNN property with a credit tenant the value is in the creditworthiness of the tenant combined with the remaining term on the lease. In this case the investment value usually exceeds the market value of the real estate alone. In many cases the investment value FAR exceeds the real estate value.

What about a scenario were the tenant is credit-worthy but the remaining lease term is short? Now our emphasis needs to shift to the remaining term and weigh this against the real estate value.

In this case we need to consider the spread between the “lease value” and the “real estate value”. Another way to say this would be, “How much more am I willing to pay for this lease above the cost of the real estate alone? As the remaining lease term decreases this spread also decreases. Theoretically, the day the lease expires the value of the lease (which is now zero) meets the value of the real estate.

The challenge before us as investors and brokers is to pinpoint the value of our NNN investments by analyzing their position in the value “spread”.