What Is A Leased Investment?
Investment grade, long term net leases means the primary aspect of a certain lease structure. Investment grade means the quality of tenant to which the lease is made. In relation to long term however, this means the length of lease in general while the net leases means the structure of these lease obligations.
If you wish to know more about these subjects, then I recommend you to read the next paragraphs.
Number 1. Investment Grade – this lease is basically lease to tenants that are maintaining a credit rating of Better Business Bureau or even higher. The rating investment is being represented by the company’s ability to repay its obligations. In line with the agency’s rating, it is how BBB is representing good credit. Most of the time, it is only the big and national companies that are able to maintain good credit rating.
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Both franchise and regional tenants are actually small for the rating agencies to monitor. With this in mind, it is suggested that the lease is corporate backed by parent company and isn’t just regional franchisee. There is a big difference between strength and credit of regional franchise owner as well as the actual corporation itself. The corporate parent can provide better rent stability in midst of economic downturn while the rent stability means improved stability for the price and value of your real estate.
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Number 2. Long Term – most of the time, long term means fixed length obligation in lease term or beyond ten years. There are advisors or brokers that can also include lease option as part of fixed lease term. Knowing what is obligations and options is very important. If for example the tenant is offered an option to renew for additional 5 years after the initial 5 year term, the lease term ought to be considered as 5 year lease with additional 5 years in option and not a 10 year lease.
As a client, you have to figure out the rent terms and on how long the tenant is obligated to pay as it makes a huge difference when considering your returns, risks, ability to acquire financing and also your ability to resell property for profits.
Number 3. Net Leases – the types of leases to which tenants are in charge for operating expenses which include the structure, insurance and the roof are referred to as Double Net or NN and Triple Net or NNN leases. Pure NNN lease that covers such costs via the term of lease is typically referred as absolute NNN lease. Some are even calling it as Triple Net that don’t include expense on roof or structure of the building. As a matter of fact, these leases are also known as modified NNN or double net NN leases.