| Tenant / Type | Cap Rate |
|---|---|
| CVS / Walgreens | 5.00–5.75% |
| McDonald's / QSR | 4.50–5.25% |
| Dollar General | 5.50–6.25% |
| AutoZone / O'Reilly | 4.75–5.75% |
| NNN Industrial | 4.50–5.50% |
| Non-IG Retail | 6.00–8.00% |
Source: Market estimates, Q2 2026. Full market data →
NNN Lease Investment Analysis
| Year | Gross Rent | OpEx + CapEx | NOI | Debt Service | Pre-Tax CF | CoC | DSCR | Loan Balance |
|---|
IRR across hold periods and exit cap rates, all other inputs held constant.
What is a NNN (Triple-Net) Lease?
A triple-net lease is the most landlord-friendly commercial lease structure in existence. Under absolute NNN terms, the tenant is responsible for 100% of all property costs: base rent, property taxes, building insurance, and all maintenance and repair costs including the roof and structure. The property owner receives a clean net rent check with virtually no operating obligations or expense exposure.
This structure is most common in single-tenant retail (pharmacies, fast food, auto parts, dollar stores), industrial warehouses, and sale-leaseback transactions. The passive income nature of NNN investments makes them attractive for 1031 exchange buyers, family offices, and individual investors seeking equity-like returns with minimal management burden.
The Three "Nets" Explained
- Property Taxes: Annual real estate taxes paid by tenant to local government
- Building Insurance: Property and casualty insurance on the structure
- Maintenance: All upkeep, repairs, and capital improvements to the property
NNN Lease Cap Rates and Tenant Credit Quality
The most important variable in NNN lease valuation is tenant credit quality. Investment-grade tenants (S&P BBB- or better) command significantly tighter cap rates than non-rated or sub-investment-grade tenants. A CVS or McDonald's trading at 4.75% cap provides far more security than a regional restaurant chain at 7.50% — but the investor in CVS accepts a significantly lower initial yield.
Cap rate also varies with remaining lease term (WALT). A 20-year absolute NNN CVS lease commands a tighter cap than the same asset with only 5 years remaining. As leases approach expiration, buyers demand higher cap rates to compensate for re-leasing risk. Understanding the cap rate/credit/term relationship is fundamental to NNN lease investment.
Factors That Move NNN Cap Rates
- Tenant investment-grade credit rating (BBB- or better = premium pricing)
- Remaining lease term (longer WALT = tighter cap)
- Rent bump structure (annual % bumps = premium over flat leases)
- Market interest rates (cap rates typically move with Treasury yields)
Sale-Leaseback Transactions: A Primer
In a sale-leaseback, a company sells owned commercial real estate to a real estate investor and simultaneously signs a long-term NNN lease to remain as the tenant. The company unlocks capital from its real estate while retaining full operational use of the property. The investor receives a stabilized NNN income stream from day one with a creditworthy tenant who is already in place and motivated to remain.
Sale-leasebacks are most common in industries where real estate is a core operational asset but not a core business competency: restaurant chains, pharmacy networks, industrial distributors, auto parts retailers, manufacturing companies, and healthcare operators. From 2015–2025, sale-leaseback transaction volume exceeded $100B annually in the US alone, driven by low interest rates and private equity interest in unlocking balance sheet real estate.
NNN Lease Rent Bumps: Fixed vs. CPI
The rent escalation structure in a NNN lease determines how investment returns grow over time and significantly affects both cash-on-cash performance and exit cap rate. There are three common rent bump structures:
Three Types of NNN Rent Bumps
- Annual fixed %: Rent increases by a set percentage (e.g., 2% or 3%) each year. Most favorable for investors because growth is predictable and compounds effectively. Now common in NNN industrial and many retail leases.
- Every-5-year fixed: Rent stays flat for 5 years then jumps by 5–10%. Common in older retail NNN. Less favorable due to flat periods.
- CPI adjustments: Rent tracks Consumer Price Index. Provides inflation protection but less predictability. Common in long-term ground leases.
- Flat leases: No rent increases throughout the lease term. Most common in legacy drug store and fast food deals. Lowest quality from an investment standpoint.
How to Interpret Your NNN Lease Results
For NNN investments, the calculator's IRR and cash-on-cash outputs should always be read alongside tenant credit and remaining lease term — the same return can mean very different risk depending on who's signing the rent check. A 4.5–5.5% cap rate paired with an investment-grade tenant on a 15+ year lease is a premium, low-risk deal; the same cap rate on a non-rated tenant with 5 years remaining is significantly overpriced for the risk.
A levered IRR of 7–10% is typical and healthy for core NNN with IG credit — don't expect (or need) value-add-level returns from a passive, credit-anchored income stream. If the calculator shows an IRR above 12% on a claimed "core" NNN deal, double check the exit cap rate assumption and lease term; the return is often being driven by aggressive cap rate compression rather than durable income.
- 4.5–5.5% cap, IG tenant, 15+ yr WALT: premium, low-risk pricing
- 5.5–7.0% cap, mid-tier credit or 10–15 yr WALT: solid core-plus
- 7.0%+ cap, non-rated tenant or <10 yr WALT: higher risk, verify releasing prospects
- IRR 7–10%: normal for core NNN; above 12% warrants a cap-rate sanity check
Worked Example: An Investment-Grade Sale-Leaseback
A national auto parts retailer (BBB S&P rated) completes a sale-leaseback on its 7,000 SF store, selling to an investor for $2.6M at a 5.25% cap rate — Year 1 NOI of $136,500. The lease runs 20 years with 5% rent bumps every 5 years, and the tenant pays 100% of taxes, insurance, and maintenance under an absolute NNN structure. The investor finances at 60% LTV, a conservative leverage level typical for credit-anchored NNN debt.
With the tenant covering all operating costs, NOI stays essentially flat with rent through the hold, and the fixed step-ups produce predictable, low-volatility NOI growth — 5% jumps in years 6, 11, and 16 rather than smooth annual increases. At exit (say a 10-year hold), the tighter cap rate typically compresses slightly further given the shorter remaining term is offset by the step-up just executed, keeping valuation roughly stable to modestly higher.
Running these inputs through the calculator produces a levered IRR in the 8–9% range — squarely in the "core NNN" tier from the benchmarks above, consistent with an investment-grade, long-WALT credit tenant deal. The modest IRR is the trade-off for near-zero landlord management burden and high income certainty. (Figures are rounded for illustration; enter the exact inputs above for a precise result.)