Absolute Net Lease properties are also referred to as Bonded leases. They provide an even further ease of ownership than a standard triple net lease.
If you are in the process of securing a 1031 transaction or simply desire to park money into a safe investment property as a passive investor, this may be an ideal type of purchase for you.
Absolute Net Lease Properties
With an absolute net lease property, the tenant pays for the following:
- Basic Rent – The tenant pays the gross rent on a fixed basis as stipulated in the lease
- Taxes – The tenant pays the taxes on the property
- Insurance – The tenant pays insurance expenses
- Maintenance – This includes the roof, structure and structural maintenance repairs
Absolute Net lease Advantages
- Long-Term – Many Absolute net leases provide long term commitments by tenants. These leases can typically be 10 or 15 years
- Corporate Backed – Depending on the Company, the lease can be guaranteed by the parent company
- Easy Management – There is very little work to do for the owner of the property, as the tenant is responsible for everything
Challenges and Concerns
While Absolute Net Leases are very attractive to a passive investor, there is no risk free investment transaction. Risks include the following:
- Lease-Breaks – Despite a Corporate backed tenant, there are circumstances in a lease that allow a tenant to terminate a lease agreement. These may be referred to as “kick-out” clauses. In these scenarios, a Company may be able to cancel a lease if certain revenues are not generated by a certain period of time
- Filling a Vacant Space – In the event of a lease termination, these large commercial spaces may be difficult to re-rent
Our Five Cents
Absolute net lease properties can create easy investments for owners. However, when analyzing a property, the key is to select a great location that not only has stable rents, but room for appreciation as well. If all of the criteria on an Absolute net lease do not check out, it may be better to purchase a different type of property that offers more upside.
If the Absolute net lease property offers all of the above, than we recommend moving forward with your purchase. Do not simply choose the property because of the type of lease when additional factors may not add up.
JSG Realty is thoroughly experienced with absolute net lease properties. Please contact us for a full list of properties and advise on the commercial real estate market.