Triple net (NNN) leases are a popular investment choice today, with many leveraging these assets as cornerstones of their portfolios. Before they became the contemporary strategy for long-term investment that they’re now known for, however, NNN leases had to undergo an evolution that shaped them into the tools they are.
In this article, Realized 1031 shares an overview of triple net history to help you understand its origins and gain insight into where it’s headed.
Commercial leasing is the foundation of NNN leases, and it’s essentially the practice of renting out a property to a commercial tenant. This concept has been around for centuries, but the idea of net leases began in the U.S. during the early 20th century.
U.S. landlords handled the net operating expenses of the property during this period. However, the arrangement put them at risk, since the cost of property taxes, insurance, and maintenance always fluctuates. New lease agreements began to emerge, which assigned financial responsibility to both tenants and landlords, helping create balance in landlord-tenant relationships.
It was after the Second World War, in the 1950s and 1960s, that net leases truly began to take hold. Real estate investment was booming, especially in the commercial sector, and net leases became more popular as landlords wanted more predictable income streams while minimizing administrative tasks.
In terms of tenants, those in the retail industry were among the first to embrace the NNN model. National chains looking to expand, such as drugstores, grocery stores, and fast-food restaurants, preferred long-term leases that gave them operational control over their locations.
NNN leases were initially leveraged by property owners and tenants, but their structure made them advantageous for investment purposes. By the 80s and 90s, triple net lease assets were being acquired by real estate investment trusts (REITs) as a way to generate long-term cash flow.
Sale-leaseback transactions were also growing during this period, where companies sold their properties to investors, then immediately rented them back. This practice allowed investors to access long-term, predictable income while the companies retained operational control over the asset after freeing locked capital.
Today, NNN leases have spread into other industries — it isn’t just retail any longer. Investments in healthcare, office, and industrial warehousing have also become viable options, offering stability and resilience against various market conditions.
Another modern development is the growth of institutional and individual investor interest. With low maintenance responsibilities and steady cash flows, NNN properties appeal to everyone from private investors looking for passive income to large funds seeking portfolio stability.
Several developments in NNN investments have emerged, and we can expect them to become more impactful in the coming years.
From its early beginnings in the 20th century to its current form as a powerful investment tool, the NNN lease has undergone major evolution. Knowing this history helps you better understand why it’s a stable and predictable strategy. As the NNN lease changes or adapts to future investor demands, your knowledge of its origins also allows you to anticipate its future trends and identify new opportunities.
Sources:
https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp
https://www.investopedia.com/terms/l/leaseback.asp
https://www.un.org/development/desa/dpad/wp-content/uploads/sites/45/WESS_2017_ch2.pdf