NNN benchmarks give you a systematic way to evaluate every triple-net opportunity - whether single-tenant freestanding or multi-tenant strip center with NNN pass-throughs. These numbers represent current market pricing and should be refreshed quarterly as credit conditions and interest rates shift. Used properly, benchmarks help you quickly separate overpriced deals from undervalued opportunities worth pursuing.
Single-Tenant Cap Rate Benchmarks by Credit Quality
Investment-grade tenants (BBB-/Baa3+) trade at 5.3-6.0% cap rates with 2.0-2.5% annual rent escalations, delivering 7.3-8.5% all-in returns. Strong private tenants (equivalent to BBB) trade at 6.0-6.8% with 1.5-2.5% growth, delivering 7.5-9.3% returns. Moderate private (equivalent BB) trades at 6.8-7.5% with 1.0-2.0% growth. Below-investment-grade trades at 7.5-8.5%+ with 0-1.0% growth. Multi-tenant NNN portfolios typically trade 50-150 bps wider than comparable single-tenant deals, reflecting added management burden and re-tenanting risk - target 6.5-7.5% blended for a well-occupied multi-tenant center with strong anchors.
Investment-grade commands tightest pricing due to low default risk. Strong private trades at 70-80 bps premium reflecting execution risk in assessing credit. Below-investment-grade reflects meaningful credit risk.
Minimum Deal Thresholds
Before going deep on any NNN deal, screen against these baseline thresholds. DSCR should be at least 1.25x (most lenders require 1.20-1.35x for NNN). Remaining lease term should be 7 years minimum - shorter terms compress financing options and increase re-tenanting risk. For retail tenants, rent-to-sales ratio should be under 10%, confirming the tenant can sustain the rent long-term. Location should rank in the top three submarkets for its trade area. These apply to both single-tenant and multi-tenant NNN - adjust cap rate expectations upward for multi-tenant portfolios (typically 6.5-7.5% blended) given the added management complexity.
Benchmark Usage: At 5.5% cap rate: is tenant investment-grade (fair value) or strong private (possibly overpriced)? Use benchmarks to calibrate whether pricing is fair relative to credit quality.
FAQ
Q: What's a good all-in return target?
A: Minimum 7.5-8.0% all-in returns (cap rate plus rent growth) for 10+ year holds. If a deal achieves only 7.0-7.5%, risk-reward is poor without compelling reasons.