How to judge the credit quality of a triple net (NNN) lease tenant
Tenant success is an important factor in a commercial real estate (NNN) investment. When preparing to finance a triple net lease property, the first step is to evaluate the credit quality of your potential tenants.
Tenant credit is determined by national credit agencies
Credit quality for national tenants is determined by credit rating agencies Standard & Poors and Moody’s. A national tenant is a company who has a retail footprint nationwide, like McDonalds or O’Reilly Auto Parts. Credit ratings are opinions by Standard & Poors and Moody’s about the ability of a tenant to meet their future financial commitments. In general, the higher the credit rating, the more valuable the tenant.
Local or regional tenants do not have a credit quality rating. Instead, we review the tenant’s industry and historical sales information to understand financial potential. In general, tenants in high-traffic service, pharmacy, and quick service restaurant industries are more valuable as tenants, all other factors being equal.
A note about multiple-tenant lease properties
In multi-tenant net lease properties, it’s valuable to have a strong anchor store, such as a grocery, in addition to a diverse set of high-traffic services or retailers. Pay particular attention to the credit rating of the anchor tenant as this retailer will be a large driver of the property value.
Once you’ve selected an investment property, we can help you evaluate your financing options, taking into account the quality of the tenants in that property.
