NNN 101:
triple net without the triple talk.

What is a NNN lease?

A triple net (NNN) lease is a commercial lease structure in which the tenant pays base rent plus three categories of reimbursed expenses: property taxes, building insurance, and common area maintenance (CAM). The landlord's income approximates the base rent with limited exposure to expense inflation.

NNN is the default structure in single-tenant retail, most industrial, and many medical and office properties. It is popular with landlords for its operational simplicity and with tenants who prefer to control their own operating costs. Because the landlord's cash flow is closer to pure rent, NNN properties command lower cap rates than gross-lease properties of comparable quality.

The three nets, specifically

• Property taxes. The tenant reimburses ad valorem property taxes, assessed annually by the taxing jurisdiction.
• Building insurance. The tenant reimburses the landlord's property insurance premium (and, in some leases, carries their own liability and contents insurance separately).
• CAM. The tenant's pro-rata share of common-area expenses — parking lot maintenance, landscaping, snow removal, common-area utilities, and in multi-tenant settings, shared security.

Read the lease. \"NNN\" on the cover page doesn't tell you whether the landlord or tenant handles a specific expense. The operative language is in the Operating Expenses, Taxes, and Insurance sections, and in the CAM Exclusions list.

What is absolute NNN?

Absolute NNN (also called \"absolute net\" or \"bondable\") is the most landlord-favorable form of net lease: the tenant pays every expense associated with the property, including roof, structure, parking lot replacement, and other major capital items that a classic triple net leaves with the landlord.

Absolute NNN is common with credit tenants on long-term leases — 15 to 25 years with rent escalations. Walgreens, CVS, and Chick-fil-A ground-lease transactions are classic examples. Because the landlord is essentially clipping a rent coupon backed by real estate collateral and tenant credit, absolute NNN trades at the tightest cap rates in the net lease universe.

A truly bondable lease goes one step further: the tenant pays rent regardless of casualty, condemnation, or inability to occupy. Most \"absolute NNN\" deals are not fully bondable — the difference shows up in the insurance and condemnation sections of the lease.

How do you read a net lease?

The lease is the asset. Here is what a working broker actually looks at on first pass:

1. Base rent schedule. What is the rent today, and what are the scheduled increases (\"bumps\")? Flat? 1.5% annual? 10% every five years? CPI-indexed?
2. Lease term and options. How many years remain on the primary term? How many renewal options, at what rents?
3. Tenant and guarantor. Is the contracting entity the corporate parent, a regional operating subsidiary, or a franchisee? A \"Walgreens lease\" signed by a small franchisee is not the same as one signed by Walgreens Boots Alliance.
4. Responsibility matrix. For each major expense category — taxes, insurance, CAM, roof, HVAC, parking lot, structural — who pays and who performs?
5. Reimbursement caps and exclusions. Many NNN tenants negotiate caps on CAM increases or exclusions for capital items. These matter to the landlord's exposure over time.
6. Go-dark clause. Can the tenant stop operating but keep paying rent? In retail, this affects co-tenancy and specific percentage-rent triggers; it also signals operational risk.
7. Assignment and sublease rights. Can the tenant walk away by assigning to a weaker credit? Does the landlord consent? Is the guarantor released on assignment?

How are NNN cap rates set?

NNN cap rates are primarily driven by four variables: tenant credit, remaining lease term, rent-to-sales ratio (in retail), and location quality. A Walgreens with 15 years remaining on an absolute NNN lease in a strong Southeast corner trades at a different cap rate than a regional pizza chain with 4 years remaining on a secondary corner.

Institutional-grade tenants on long-term absolute NNN leases trade in a range roughly from low-5s to low-6s caps (as of 2026). Non-investment-grade tenants or shorter-term leases trade from mid-6s to mid-8s. Tertiary markets, sub-10-year term, or credit concerns widen the spread further.

The most common NNN pricing mistake

Buyers focus on cap rate and miss basis. A 7% cap on a property $350/SF above replacement cost in a tertiary market is a much riskier deal than a 6% cap on a property $50/SF below replacement in a primary submarket. Cap rate is a snapshot; basis is the safety net when the tenant eventually rolls.

Who are the common NNN tenants?

Single-tenant NNN retail is dominated by: pharmacies (Walgreens, CVS), dollar stores (Dollar General, Dollar Tree, Family Dollar), auto parts (AutoZone, O'Reilly), quick-service restaurants (Chick-fil-A, Starbucks, Taco Bell, McDonald's ground leases), and c-stores (7-Eleven, Wawa, RaceTrac).

Industrial NNN tenants range from credit logistics users (FedEx, Amazon) to regional distributors and manufacturers. Medical NNN is dominated by hospital-system affiliates, urgent care (MedExpress, American Family Care), and dialysis (Fresenius, DaVita).

\"Brand recognition\" is not \"credit.\" A Chick-fil-A ground lease is typically a Chick-fil-A, Inc. corporate guarantee — strong credit, long term. A franchised Chick-fil-A in an occasional format is a different entity entirely. Always pull the guarantor, not just the tenant name on the monument sign.

Red flags working brokers check

• Short remaining term. Under 7 years of base term is a re-leasing problem on the horizon. Under 4 is an immediate capital event.
• Aggressive rent bumps that never happen in practice. A lease with 2% annual bumps is fine. A lease with 10% every five years may be unachievable at renewal if market rents don't support it — the tenant exits instead.
• Tertiary markets where the tenant won't renew. Dollar General in a declining rural market may be a great current deal and a bad long-term asset. Look at 5-year population and income trends for the trade area.
• Tenant rent-to-sales out of line. In retail, rent above 7-8% of sales signals renewal risk. Demand unit-level sales during diligence.
• Franchisee guarantor on a \"corporate\" lease. Common trick. The sign says Burger King but the rent check comes from a holding company with no balance sheet.
• Functional obsolescence. Small prototype stores, odd configurations, or outdated buildings limit the landlord's re-tenanting options if the primary tenant leaves.
• Overpriced basis disguised by cap rate. Compare dollars per square foot to local replacement cost and to recent sales. A 6.25% cap on $450/SF in a market where new construction is $280/SF is an above-basis bet.

How do NNN deals interact with 1031 exchanges?

NNN is the most popular 1031 replacement strategy in the United States. The reasons are obvious: long-term passive income, institutional quality, and a cap rate low enough that a replacement at par-plus value is possible with moderate equity. If you have a 1031 exchange open, a NNN property is often on your shortlist.

Three 1031-specific considerations:

• Identification breadth. Use the Three-Property Rule to identify a primary NNN candidate, a secondary NNN candidate, and a DST backup. Do not identify three of the same tenant type in the same market — diversify your fallback.
• Closing timelines. NNN deals typically close in 30-60 days once under contract. Budget back from your 180-day deadline accordingly.
• Basis and step-up. A NNN replacement acquired through 1031 carries deferred gain from your downleg. If you plan to hold for life and pass to heirs, the step-up erases the deferred gain. Coordinate with your estate planner.

Frequently asked questions

What is the difference between NN and NNN?

A double net (NN) lease passes two expenses — typically taxes and insurance — with the landlord retaining CAM. A triple net (NNN) passes all three. Absolute NNN also pushes roof, structure, and parking lot to the tenant. Read the lease; the NN vs NNN label is not always precise.

What happens when a NNN tenant goes bankrupt?

The lease becomes subject to Chapter 11 rejection rights. The tenant (or the bankruptcy trustee) may reject the lease, in which case the landlord gets possession back and has a general unsecured claim for remaining rent, often at pennies on the dollar. This is why tenant credit and lease guarantee matter.

Is a ground lease the same as a NNN lease?

No. A ground lease is a long-term lease of land only, under which the tenant builds and owns improvements. Many ground leases are effectively absolute NNN at the land level, but the legal structure is distinct from a building-level NNN lease.

Can I lease a single-tenant NNN property to a franchisee?

Yes, but the credit and lease terms matter more than the brand. Require a full corporate or personal guarantee from a substantial guarantor, and verify the guarantor's financial statements during due diligence.

Do NNN leases pass property tax increases through?

Yes, in standard NNN structures the tenant reimburses increases in property taxes. Some tenants negotiate caps or protest rights. Check the language.

What is a CAM reconciliation?

Most CAM is billed monthly as an estimate; at year-end, the landlord reconciles actuals against estimates and bills or credits the tenant for the difference. Sophisticated tenants require audit rights and detailed backup. CAM recs are one of the most common sources of landlord-tenant disputes.