NNN Dollar General is a Great Example For Investors

NNN Lease Market News

Dollar General is a great example. Dollar General has recently moved to a much larger type facility. The leases they wrote were 10 years with 3 five year options. In many markets they decided not to exercise options, and have built much larger stores in close proximity to the original store. So the landlord is now left with an empty store, no competitor wants to lease because Dollar General is in area with a better facility, and the ballon mortgage payment is do. Further, these were set up at such low cap rates that the investor actually had negative cash flow, but theoretical equity buildup. with real estate values down and these properties hard to lease, the equity buildup is gone and so to may be the capital invested.

The point to realize is that even if everything turns out great with a NNN property, the competition is such that the investor gets a rate of return similar to a long term bond issued by the same company. The payoff would come from after the lease is up, IF the value of the property has risen with demand.

For a larger profit both cash flow and capital appreciation, the investor must lease to non credit tenants who have little market power and will pay a return reflecting a much higher cap rate. These properties can yeild double what a credit tenant NNN lease can yield. Of course the risk of default is increased also.