With real estate there are stabilized full value properties for purchase and then there is Value-Add.
With STNL NNN there are lots of ways to add value to a property.
Ground lease — Buy the land only. Since only buying the land the rents are typically 50% below market value. If tenant ever leaves, you can release to market absolute NNN rents because usually you get the building the tenant constructed for free.
Buying an absolute NNN STNL property with an in-place lease and tenant but has way below market rate rents for that building space size. You can often build in higher annual rental increases because the tenant is paying so low of a rent per sq. ft. they can make high profit sales per sq. ft.
Blend and extend — The tenant might have a few years remaining on the primary term of the lease where you buy for cash as not usually finance-able for a higher cap rate like a 10 cap and then once you negotiate a 10 year or better extension with the tenant now you might sell for a 5 to 6 cap rate.
Subdividing an oversized lot — You could have an older building vacant on an oversized lot that can now be de-parcelized to become 2 lots.
Changing the tenant type — You could get out a mom and pop tenant and land a national tenant at much higher rents per sq. ft. that sells at a lower cap rate on exit.
With MTNL NNN there are lot of ways to add value to a property.
- Change the mix of tenants at the retail center
- De-parcelize some of the single tenant properties that came with the development. (example buy retail center with outparcels at an 8 cap and then de-parcelize and sell STNL pieces at 4 to 5 cap rates).
- Take extra parking lot spaces not being used close to pylon sign at front of the road and do ground lease, build to suit, etc. to single tenant businesses.
- Keep main anchor tenant but sell off smaller retail centers in the project.
