A triple net lease (NNN) is a commercial real estate lease agreement where the tenant pays base rent plus three additional expenses: property taxes, insurance, and common area maintenance (CAM). The landlord receives "net" rent after these operating expenses are passed through to tenants.
Triple net leases are the foundation of commercial real estate investing, particularly in retail, industrial, and single-tenant properties. Understanding NNN leases is essential for anyone underwriting commercial acquisitions or evaluating investment opportunities.
In this guide, we'll cover everything from the basics of what NNN means to advanced underwriting considerations for NNN properties. Whether you're evaluating your first NNN deal or refining your analysis process, this guide has you covered.
The Three N's Explained
The "triple" in triple net refers to three categories of operating expenses that tenants are responsible for paying:
Property Taxes
Real estate taxes assessed by local governments based on the property's assessed value. In NNN leases, tenants pay their pro-rata share of property taxes, typically based on their leased square footage as a percentage of total building area.
Insurance
Building insurance premiums including property coverage, liability insurance, and sometimes flood or earthquake coverage depending on location. Tenants typically pay their pro-rata share of the landlord's insurance costs.
Common Area Maintenance (CAM)
Costs to maintain and operate common areas of the property. This includes landscaping, parking lot maintenance, snow removal, security, property management fees, utilities for common areas, and general repairs. CAM is often the largest component of NNN expenses.
How to Calculate NNN Rent
Calculating total rent under a NNN lease is straightforward once you understand the components:
Example Calculation
Let's say you're evaluating a 5,000 SF retail space with the following terms:
| Component | Per SF/Year | Annual Total |
|---|---|---|
| Base Rent | $20.00 | $100,000 |
| Property Taxes | $3.50 | $17,500 |
| Insurance | $1.25 | $6,250 |
| CAM | $4.25 | $21,250 |
| Total (Gross Rent) | $29.00 | $145,000 |
In this example, the tenant pays $20/SF in base rent plus $9/SF in NNN expenses, for a total gross rent of $29/SF. The landlord receives the full $100,000 base rent as "net" income since operating expenses are covered by the tenant.
NNN vs Gross Lease: Key Differences
The primary difference between NNN and gross leases is who bears the risk of operating expense increases:
| Factor | Triple Net (NNN) | Gross Lease |
|---|---|---|
| Who pays operating expenses? | Tenant | Landlord |
| Expense increase risk | Tenant bears risk | Landlord bears risk |
| Base rent level | Lower (expenses separate) | Higher (expenses included) |
| Common property types | Retail, industrial, single-tenant | Office, multifamily |
| Management burden | Lower for landlord | Higher for landlord |
Types of Net Leases
Triple net is just one type of net lease. Here's how they compare:
Single Net (N)
Tenant pays base rent + property taxes only. Landlord covers insurance and CAM.
Double Net (NN)
Tenant pays base rent + property taxes + insurance. Landlord covers CAM.
Triple Net (NNN)
Tenant pays base rent + property taxes + insurance + CAM. Most common in retail and industrial.
Absolute Net / Bondable
Tenant pays ALL expenses including roof, structure, and capital repairs. Truly passive for landlords.
Underwriting NNN Properties
When underwriting NNN investment properties, analysts focus on several key areas beyond standard cash flow analysis:
1. Tenant Credit Quality
Since NNN properties often have single tenants, the tenant's ability to pay rent is critical. Evaluate credit ratings (for investment-grade tenants), financial statements, and industry outlook. Investment-grade tenants like Walgreens, Dollar General, or Starbucks command lower cap rates due to lower credit risk.
2. Lease Term and Structure
Longer lease terms reduce re-leasing risk. Key factors include:
- Remaining lease term (WALT - weighted average lease term)
- Rent escalations (fixed increases, CPI-linked, or flat)
- Renewal options and terms
- Termination clauses or kick-out rights
3. CAM Reconciliation
Review historical CAM expenses and reconciliations. Verify that:
- Actual expenses match estimated CAM billings
- Management fees are within market norms (typically 3-5% of gross revenue)
- No capital expenses are incorrectly included in CAM
- CAM caps or floors exist in the lease
4. Landlord Responsibilities
Even in NNN leases, landlords may retain some responsibilities. Common landlord obligations include:
- Roof and structure repairs (unless absolute net)
- Capital improvements beyond normal maintenance
- Environmental remediation
- ADA compliance upgrades
Underwriting NNN properties faster
Primer automatically extracts lease terms, rent rolls, and expense data from broker OMs and lease documents. Stop copying data manually — focus on the analysis that matters.
Book a demoNNN Investment: Pros and Cons
Advantages
- • Predictable cash flow - Tenants cover expense increases
- • Lower management burden - Tenants handle day-to-day operations
- • Long lease terms - Often 10-25 years with credit tenants
- • Simple underwriting - NOI ≈ base rent for stabilized properties
- • 1031 exchange friendly - Popular for tax-deferred investing
Disadvantages
- • Tenant concentration risk - Single tenant = single point of failure
- • Limited rent growth - Fixed escalations may lag inflation
- • Re-tenanting challenges - Specialized build-outs hard to repurpose
- • Lower yields - Credit tenant properties trade at low cap rates
- • Residual value uncertainty - What happens when lease expires?