Single-Tenant vs. Multi-Tenant

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Featured Article

Title: Single-Tenant vs. Multi-Tenant: Exploring the Pros and Cons of NNN Properties

In the realm of commercial real estate (CRE), one of the fundamental decisions when considering triple net (NNN) investment properties is whether to opt for single-tenant or multi-tenant properties. Each option comes with its own set of advantages and drawbacks, which can significantly impact investment strategies and outcomes. Let's delve into the intricacies of both single-tenant and multi-tenant NNN properties to help you make informed decisions.

Single-Tenant NNN Properties:

Pros:

1. Stability and Predictability: Single-tenant properties offer a higher degree of stability since the lease terms are typically long and the tenant is responsible for most property expenses, including maintenance, taxes, and insurance.

2. Credit Quality: Investing in a single-tenant NNN property often means dealing with a high-credit-quality tenant, such as a national retailer or a well-established corporation. This enhances the likelihood of consistent rental income.

3. Ease of Management: With only one tenant to deal with, management responsibilities are streamlined, reducing administrative burdens and operational complexities.

Cons:

1. Dependency on Single Tenant: The primary risk associated with single-tenant properties is the dependency on a single tenant. If the tenant vacates or defaults on the lease, it can significantly impact cash flow and property value.

2. Limited Upside Potential: Single-tenant properties may offer limited opportunities for rental growth since lease terms are often long and rental increases are typically tied to fixed escalations rather than market fluctuations.

Multi-Tenant NNN Properties:

Pros:

1. Diversification: Multi-tenant properties mitigate the risk of dependency on a single tenant by spreading it across multiple tenants. This diversification can help cushion the impact of tenant vacancies or defaults.

2. Potential for Higher Returns: Multi-tenant properties often provide opportunities for rental growth through lease escalations and lease renewals. Additionally, they may offer greater flexibility in adjusting rental rates in response to market conditions.

3. Increased Marketability: With multiple tenants, multi-tenant properties can appeal to a broader range of investors, potentially enhancing liquidity and marketability.

Cons:

1. Management Challenges: Managing multiple tenants entails more administrative work and coordination compared to single-tenant properties. Dealing with various lease agreements, tenant needs, and maintenance issues can be more time-consuming and complex.

2. Tenant Risk Variation: While diversification reduces dependency on individual tenants, it also introduces the risk of varying credit qualities among tenants. A default by one or more tenants can still impact cash flow and property performance.

Conclusion:

In summary, both single-tenant and multi-tenant NNN properties offer distinct advantages and disadvantages. Single-tenant properties provide stability and simplicity but carry the risk of tenant dependency, while multi-tenant properties offer diversification and potential for higher returns but entail more management complexities.

Ultimately, the choice between single-tenant and multi-tenant NNN properties should align with your investment objectives, risk tolerance, and portfolio diversification strategy. Whether you prioritize stable income streams or seek higher returns through diversification, careful evaluation of these factors is essential in making informed investment decisions in the dynamic landscape of commercial real estate.

As always, it's advisable to consult with experienced CRE professionals and financial advisors to tailor your investment approach to your specific goals and circumstances.

NNN Property Spotlight

ABSOLUTE NNN DRUG STORE FOR SALE

For Sale $6,615,000 | 5.95% Cap Rate

Outstanding investment opportunity or 1031 exchange replacement property located in one of Vermont’s most prime commercial corridors. Absolute net leased property with well established drug store/pharmacy tenant. Lease escalation in 2027. Property is 100% maintained by tenant- no Landlord responsibilities. Tenant responsible for all operating expenses, property taxes, insurance, repairs, and all required capital improvements for the property. A growing population of over 107,000 residents live within a 15-minute drive of the property, representing an average household income of approximately $106,681 annually. Contact Today for Offering Memorandum

Deal Highlights:

Tenant: KPH Healthcare Services, Inc. (Kinney Drugs)

Demised Premises: +/-11,500 sq. ft. (occupies 100% of the building)

Lease Term: 8/25/11 - 5/31/32

2023 Net Annual Rent: $393,532 per year, Triple Net

Rent Escalation: Rent increases to $432,885 per year on 8/26/27

Operating Expenses: Tenant is responsible for 100% of operating expenses, including property taxes, insurance, repairs and all capital improvements required to the building.

Tenant Annual Revenue: $1.59 Billion (Dunn & Bradstreet)

Business Type: Pharmacy, Retail Sales

Contact For More Information

Industry News Roundup

Stay up to date with the latest news and developments in the triple net (NNN) industry with our curated roundup of headlines from around the web.

-Fazoli's plans to enter Canada with 25 stores (Read More)

-Publix opening seven stores in April — here’s where (Read More)

-Bad Ass Coffee to enter a new state (Read More)

-Walgreens Closing 160 VillageMD Outlets (Read More)

-Private Cash Buyers Dominate Net Lease (Read More)

NNN Tenant Profile

Tenant Description

Jiffy Lube stands as a premier provider of automotive preventive maintenance, boasting a rich legacy spanning over 35 years. Pioneering innovations since its inception in 1979, Jiffy Lube revolutionized the industry by introducing the first drive-through service bay, streamlining oil change processes for millions of customers. With an unwavering commitment to customer satisfaction, Jiffy Lube also pioneered the use of window stickers to remind patrons of their upcoming service needs.

Investors eyeing long-term stability and consistent returns often turn to Jiffy Lube net leases, which offer lucrative opportunities. These leases feature extended terms with regular rental increases, bolstering the property's Net Operating Income (NOI) over time. Most notably, Jiffy Lube leases are typically triple net, relieving investors of landlord responsibilities. Although each location is independently owned and operated by franchisees, some leases may include a corporate guarantee, further solidifying the investment's security.

Despite the potential challenges associated with repurposing Jiffy Lube-operated buildings for non-automotive purposes, their desirability remains strong among investors. This enduring appeal stems from the resilience of the automotive sector, known for its recession-proof nature. Even in the event of Jiffy Lube vacating a location, the underlying strength of the automotive industry continues to underpin the investment's attractiveness.

Presently, Jiffy Lube serves a staggering 20 million customers annually through its network of over 2,000 locations nationwide. Headquartered in Houston, Texas, Jiffy Lube operates as a subsidiary of Pennzoil, a subsidiary of Shell Oil (NYSE: RDS.A), solidifying its position within a globally renowned energy conglomerate.

For investors seeking stability, reliable returns, and exposure to a recession-resistant industry, Jiffy Lube net leases present compelling opportunities backed by a proven track record of success.

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Hughes CRE Insider Team