Benchmarks are the ruler you hold against every NNN deal that crosses your desk. Without them, you're guessing whether a 6.5% cap rate on a Dollar General is fair value or overpriced, whether 1.5% annual escalations are competitive or below market, and whether the deal structure protects you or exposes you to risk the seller is offloading. These numbers represent current market pricing as of mid-2026 and should be refreshed quarterly as credit conditions and interest rates shift. Used properly, they let you screen a deal in five minutes and decide whether it deserves a deeper look.
Cap Rate Benchmarks by Tenant Credit Quality
Investment-grade tenants — those rated BBB-/Baa3 or higher — trade at 5.3–6.0% cap rates with 2.0–2.5% annual rent escalations built into the lease. At the top end (McDonald's, Walmart, Starbucks), you're buying a bond-like cash flow stream that delivers 7.3–8.5% all-in returns when you add escalation to going-in yield. The premium pricing reflects near-zero default risk and deep replacement demand if the tenant ever does vacate.
Strong private tenants — creditworthy operators without a public rating, equivalent to BBB — trade at 6.0–6.8% cap rates with 1.5–2.5% escalations. The 70–80 basis point spread over investment-grade compensates for the additional work of evaluating credit independently. Think well-run regional QSR franchisees, established medical tenants, or multi-unit auto parts operators. These deals offer the best risk-adjusted returns for investors who can underwrite tenant financials themselves.
Moderate private tenants — equivalent to BB credit — trade at 6.8–7.5% with 1.0–2.0% escalations. Below-investment-grade trades at 7.5–8.5% or higher with flat to 1.0% growth. The wider cap rate reflects genuine credit risk: these tenants are more likely to miss rent, request concessions, or close locations during a downturn. The yield looks attractive until you factor in the probability-weighted cost of a default and re-tenanting.
Multi-tenant NNN portfolios — strip centers with NNN pass-throughs — typically trade 50–150 basis points wider than comparable single-tenant deals. A well-occupied multi-tenant center with strong anchors should target 6.5–7.5% blended. The premium reflects added management burden, re-tenanting risk on smaller inline spaces, and the operational complexity of coordinating CAM reconciliations across multiple tenants.
Minimum Deal Thresholds
Before spending time on detailed underwriting, screen every NNN deal against four baseline thresholds. First, DSCR should be at least 1.25x — most lenders require 1.20–1.35x for NNN, and a deal that can't clear 1.25x at current rates has thin margins that leave no room for error. Second, remaining lease term should be seven years minimum. Shorter terms compress your financing options, increase re-tenanting risk, and create an asymmetric negotiation dynamic where the tenant holds the leverage. Third, for retail tenants, the rent-to-sales ratio should be under 10%. This confirms the tenant can sustain the rent comfortably from store-level economics — a tenant paying 15% of revenue in rent is one bad quarter away from requesting a concession. Fourth, the location should rank in the top three submarkets for its trade area, because NNN is a long-term hold and location quality is the one variable you can't improve after closing.
Quick Screen Test: If a deal is offered at a 5.5% cap rate, ask: is the tenant investment-grade? If yes, that's fair value at the low end. If the tenant is strong-private, the deal is 50+ basis points too tight — you're paying investment-grade pricing for non-investment-grade credit. Walk away or negotiate down. Benchmarks turn pricing intuition into a repeatable discipline.
Frequently Asked Questions
What's a good all-in return target for NNN?
Target a minimum 7.5–8.0% all-in return (going-in cap rate plus projected annual rent growth) for holds of 10 years or longer. If a deal delivers only 7.0–7.5% all-in, the risk-reward is poor unless there's a compelling reason — like a below-market rent with a near-term mark-to-market opportunity or a location with outsized population growth driving future demand.
How do I evaluate a tenant that doesn't have a credit rating?
Request three years of financial statements and look at revenue trend, operating margins, and debt levels. A tenant with stable or growing revenue, margins above 10%, and manageable debt is likely strong-private equivalent. Supplement with unit-level economics: what are the tenant's sales at this specific location, and does the rent represent less than 10% of those sales? A profitable store with low occupancy cost is a durable tenant regardless of whether a rating agency has scored them.
Should I ever pay tighter than benchmark for a deal?
Only when the property has attributes that genuinely justify a premium: a newly built pad in a top-five MSA, a tenant with 15+ years remaining on the lease, or below-market rent with contractual escalations that will push yield well above the going-in rate within a few years. "Below benchmark" should be the exception that you can articulate and defend, never the default.