What is a net lease?
A net lease shifts operating costs from the landlord to the tenant. The difference between NN and NNN is which costs, and it changes what you are actually buying.
In a net lease, the tenant pays some or all of the property’s operating costs on top of base rent. That is the whole idea, and everything else is a question of degree.
A double-net lease — NN — typically leaves the landlord responsible for the roof and structure. A triple-net lease — NNN — pushes taxes, insurance and maintenance to the tenant, and an absolute-net lease leaves the landlord with essentially nothing to do. The labels are used loosely in marketing material, which is why the lease document matters more than the acronym in the listing.
For a buyer, the practical consequence is what your yield actually nets out to. A headline cap rate on a NN asset with an ageing roof is not comparable to the same cap rate on an absolute-net asset with a corporate guaranty and fifteen years remaining. Two deals quoted at the same number can be materially different investments.
The other half is credit. Because the rent is the asset, the tenant’s ability to keep paying it is the risk. That is why net lease underwriting spends more time on the tenant than on the building — and why a lease with a franchisee guaranty prices differently from the same lease with a corporate one.
By asset class
The principle is the same everywhere; what you actually underwrite is not.