Just Sold: SimonMed Imaging in Orlando, FL

Ground + Space announced today the sale of a SimonMed Imaging in Orlando, Florida. This property is a newly constructed 8,680-square-foot asset situated at a corner location off busy South Orange Avenue. Ground + Space Principal Michael Zimmerman exclusively marketed the property and represented the seller, a North Carolina-based real estate investment company. The property sold to a foreign investor for an attractive cap rate of 6.3 percent.

SimonMed Imaging is one of the largest medical outpatient medical imaging providers and physician radiology practices in the United States. With a history dating back over 30 years, SimonMed Imaging now boasts over 75 locations across the country. The corporate-guaranteed NNN lease offers ease of ownership with no landlord responsibilities. Additionally, the lease features two options to renew, along with scheduled rental increases throughout the base term and option periods. The service-based business yields an added security with an Internet-proof tenancy.

The property is ideally situated near the Sodo Orlando development, which has transformed a former industrial block into a thriving activity center with marquee retailers, luxury apartments, office space and restaurants. In addition, the site is near three major malls—including the Mall at Millenia—that report sales of over $1,000 per square foot. SimonMed Imaging benefits from daily traffic counts in excess of 36,429 and an area daytime population of more than 1.2 million people. Visitors to the SimonMed Imaging site have easy access to Florida’s Turnpike and Interstate 4, along with all the many world-renowned tourist locations in and around Orlando.

About Ground + Space

Ground + Space is a net lease brokerage firm that leads with an emphasis on personalized relationships. Michael Zimmerman and team have curated a brokerage firm and investment sales platform focused on boutique amenities and down-to-earth service. Ground + Space is rooted in more than 20 years of experience aimed at providing the best data, relationships and success rates in the business. Interested in commercial real estate investment? Contact us today to find out more about our current listings!


What is a Sale-Leaseback?

As retailers and commercial real estate property owners look to increase returns on capital investments in an uncertain market, the sale-leaseback option is becoming more popular. So, what exactly is a sale-leaseback, and why is it an enticing option for retailers?

The Basics of a Sale-Leaseback

In a typical sale-leaseback transaction, a property owner (like a chain retailer) sells the real estate used in its business to a separate investor (either private or institutional) while simultaneously leasing that same property from the purchaser. The sale-leaseback transaction can include either or both the land and the improvements, and usually features a triple-net lease arrangement. These transactions also typically accommodate fixed lease payments to provide for amortization of the purchase price over the lease term, options for the seller to renew the lease and, on occasion, an option for the seller to repurchase the property at a future date.

The Benefits of a Sale-Leaseback

There are many advantages to a sale-leaseback for retailers. Gaining capital for things like adding store units or paying off business debt are just some of the many ways a sale-leaseback can provide greater return on investment. With a sale-leaseback, the seller regains use of the capital that went into the purchase of the property. The seller usually receives more cash return with a sale-leaseback transaction than through a conventional mortgage financing plan.

With a sale-leaseback, the seller is often able to structure the initial lease term for a period that meets its needs without having to worry about refinancing, balloon payments, appraisal fees and other substantial costs. For a business looking to expand its footprint, this means there would be little to no need to take out a high-interest loan in order to make improvements or open new locations. Additionally, the seller is in a better position to negotiate rental rates and renewal options at the time of sale with a new property owner. Another bonus: rental payments from the newly established lease are fully tax deductible.

Investing in a Sale-Leaseback

For the investor, a sale-leaseback transaction can offer attractive, steady returns. With a fresh lease in place at the time of the transaction, there is less risk of tenant default. Sale-leaseback transactions also typically result in lower management costs and the associated risks thanks to the longevity of the lease. Depending on the lease term and scheduled rental escalations, the sale-leaseback will likely hedge against any future inflation. Additionally, the investor can now capture any future appreciation in the real estate asset.

Things to Consider

Although a sale-leaseback transaction might at first seem advantageous, it’s important to understand both the benefits and the potential risks of such a transaction. Changes in accounting rules or tax reforms can affect the way income from a sale-leaseback transaction is reflected on a company’s balance sheet. However, the demand for single-tenant properties typically sold via sale-leaseback is on the rise. Lower cap rate trends are driving the market and could result in increased sale-leaseback activity.

Are you interested in selling commercial real estate assets? Ground + Space is a leading commercial real estate brokerage firm that specializes in single-tenant and retail NNN investments. The team at Ground + Space works to analyze current market data to offer clients best-in-class service. Contact us today to learn more about how a sale-leaseback transaction could benefit your business strategy.


The Difference Between NNN Leases and Absolute Net Leases

In commercial real estate, several types of leases accommodate a range of different economic responsibilities between the tenant and investor. These leases include single, double or triple net (NNN) leases; percentage leases; gross leases; modified gross leases; pass through leases and absolute net leases.  When investing in commercial property, it’s important to have proper expectations before signing any type of lease. NNN leases are often confused with absolute net leases and making a discernible distinction is integral to understanding your commercial real estate investment and responsibilities.

What is a NNN lease?

In a NNN lease, the tenant is responsible for taxes, insurance, and general building maintenance, and the landlord or investor is removed from almost all of the financial obligations. However, the roof and structure of the property are not traditionally included in the tenant’s list of maintenance responsibilities. NNN leases are typically longer-term for commercial real estate properties and have initial terms that begin at 10 years or more. Accordingly, NNN leases are very popular as they provide multiple benefits for both tenants and investors.  

What is an absolute net lease?

In an absolute net lease, sometimes called a bondable lease, the tenant is responsible for rent and all other property related expenses, which includes roof and structure. This agreement completely relieves the property owner or investor of all financial obligations. An absolute net lease is a variation of the NNN lease that is commonly used when the investor has borrowed money to finance the commercial property and opts to put additional risks in the hands of the tenant.

Why are NNN leases and absolute net leases often confused?

The confusion between NNN leases and absolute net leases often initiates from an inaccurately advertised NNN lease, or a misunderstanding of the different leases on either the investor’s or the tenant’s behalf. When a property is advertised as a NNN lease, the investor may make the purchase under the assumption that all expenses are the tenant’s responsibility and unintentionally incur a massive financial expenditure in the future. In another scenario, and because ”NNN lease” is a more popular phrase than “absolute net lease,” the property may be listed as a NNN lease when the terms describe an absolute net lease. This risks blindsiding the tenant later on with a hefty roof or structural repair bill.

What are the best ways to avoid confusion between NNN leases and absolute net leases?

Investors and tenants can avoid confusion between NNN leases and absolute net leases by performing ample research on the different types of leases. The parties involved must also be well-versed in both the particulars and the fine print of a lease before signing. Additionally, commercial real estate brokerages offer expertise and information on all different types of agreements and investments. To maximize the returns of a commercial property investment, it’s always best to consult professionals.

Interested in commercial real estate investment? Ground + Space is a leading commercial real estate brokerage firm that specializes in single-tenant and retail NNN investments. Contact us today to find out more about our current listings!


Single Tenant Net Leases Versus Multi-Tenant Net Leases: Which Is a Better Investment?

Commercial real estate presents investment opportunity in a variety of formats. Investors typically decide between either a single tenant net lease property or a multi-tenant net lease property. As both types of investment opportunities offer several pros and cons, preference is often circumstantial. Below is an in-depth analysis and comparison—read on to enhance your understanding of single and multi-tenant net leases.

What are single and multi-tenant net leases?

A single tenant net lease is a rental agreement between the sole occupant of a one-unit space and its owner or landlord. A multi-tenant net lease is a rental agreement between several occupants or renters in a larger, multiple-office property. Net leases require the tenants to assume responsibility for some or all of the additional costs associated with a commercial property on top of the agreed-upon rent. Accordingly, net leases are popular types of rental agreements in commercial real estate, as they benefit both the tenants and the landlords. Different forms of net leases, such as single, double or triple net leases, entrust the occupants with incrementally increasing responsibilities, which gives landlords and tenants an array of choices for various scenarios.

Single Tenant Net Lease: Pros and Cons

Single tenant net lease properties are often appealing to first-time investors because of their simplicity. With only one tenant to attend to, the management requirements are far less demanding. Single tenant net leases also typically average between 10-20 year terms, which is advantageous for long-term budgeting and planning. Additionally, single tenant commercial real estate agreements are very often designed as triple net leases, which almost entirely alleviate the landlords of property obligations.

However, investing in a single tenant property relies heavily on the quality of the sole tenant. If the occupant’s business fails or encounters financial trouble, the investor’s primary source of income is significantly limited if not eliminated. A completely vacant property has a detrimental impact on a commercial investment. Aside from losses associated with the vacancy itself, upkeep, improvements, insurance and other affiliated costs begin to diminish overall return rates until a new tenant is found.

Multi-tenant Net Lease: Pros and Cons

As multi-tenant net leases rely on a multitude of occupants, the likelihood of total vacancy is very low. Multi-tenant net leases typically average seven years, which leaves room for relatively frequent adjustments. Additionally, investors lean toward a multi-tenant property because they prefer to close on several units at once instead of several individual endeavors. This approach is often perceived as more efficient and more economical, as it reduces transactional closing fees and procedures.

Contrarily, a multi-tenant property also signifies increased duties and responsibilities. Multiple occupants require more active management due to specialized, individual needs. Furthermore, these properties are often considered a higher-risk investment, as they are more susceptible to significant value loss during an economic downturn and also require periodic capital contribution for maintenance or improvements. These risk factors combined with the typically higher turnover rate of multi-tenant property occupants result in higher interest rates from lenders.  

Interested in commercial real estate investment? Ground + Space is a leading commercial real estate brokerage firm that specializes in single-tenant and retail NNN investments. Contact us today to find out more about our current listings!


The Need-to-Know Considerations of a Triple Net Lease Investment

A triple net lease, often called a net-net-net (NNN) lease, is a commercial real estate agreement in which the tenant agrees to cover the net real estate taxes, building insurance, and maintenance fees in addition to the agreed-upon rent. Every triple net lease is different, however, and typically has unique scenarios and parameters. Accordingly, an investor, landlord or tenant must perform a thorough assessment of the agreement before proceeding. Below are the most applicable considerations regarding triple net lease investments.

Unit Economics

Unit economics outline the direct revenue and cost associated with the business model within the space. A proper unit-economics assessment enables the investor to determine the relative likelihood of lease renewal as well as predict potential profits. The type of tenant and operational expectations will greatly affect the unit economics, and thus the parameters and considerations of the NNN lease. A Starbucks has different operational expectations than a Mattress Firm, for example, and may want to negotiate a different NNN lease structure. Unit economics analyses are also helpful in comparisons between similar or neighboring locations.

Tenant Quality

Tenant quality in commercial real estate refers to the expected reliability, character and performance of an occupant. Low-risk tenants are typically favorable, primarily because NNN leases often involve single-tenant properties. An investor cannot risk the possibility of losing all forms of cash flow to cover expenses if a high-risk tenant fails and declares bankruptcy. High-risk tenants, however, offer the potential for higher cap rates and higher cash-on-cash returns, and different investors may prefer different levels of risk.

Rent and Term Length

Long-term triple net leases provide stability and longevity, but an investor must pay careful attention to ensure adequate stipulations and predetermined rent raises to account for inflation. Neglecting to account for the gradual decrease in the value of the dollar can cut into profit margins or offset them entirely, depending on the length of the NNN lease. Additionally, triple net leases can include renewal options, which provide investors, landlords and tenants with a viable alternative to a long-term contract. Triple net leases with renewal options are worth considering for less-proven business models.

Early Termination

An early termination clause gives the tenant the ability to sever ties before the lease term is completed and results in a severe risk of cash flow loss in an investment. A tenant is typically required to give ample notice of early termination accompanied by a lump sum payment.

Co-tenancy

A co-tenancy clause is a provision of a retail NNN lease agreement that specifies terms for the potentialities of neighboring businesses. Co-tenancy clauses offer the tenant some form of protection against a major competitor moving next door, or if an anchoring, adjacent business ceases operation or relocates. These types of scenarios can result in a significant change in consumer traffic and tenants may negotiate a co-tenancy clause as a precaution.

Interested in commercial real estate investment? Ground + Space is a leading commercial real estate brokerage firm that specializes in single-tenant and retail NNN investments. Contact us today to find out more about our current listings!


4 Ways to Determine the Value of an Investment Property

The value of a commercial or retail property heavily influences its operational performance, the tenants’ leasing options and the investment yield. Investors and appraisers utilize several different methods to determine the value of a property, often depending on the type of real estate, the availability of information or the goal of the investment. Gain insight into four of the most common methods below to accurately assess the value of single and multi-tenant commercial properties and maximize your profits from retail real estate leasing.

The Income Approach

The income approach is a frequently used method for evaluating a commercial property. In this situation, the value of a retail investment property relies on the interpretation of the net operating income (NOI) and the capitalization rate (cap rate). The NOI of a retail property is determined by subtracting operating expenses and vacancies from the overall potential rental income. The cap rate predicts the annual rate of return by dividing the NOI by the most recent value of the property.

By evaluating these factors, the investor focuses on recent sales and operational figures. The income approach also allows for simple adjustments to account for unique scenarios, such as likely tenant additions or scheduled maintenance.

The Cost Approach

The cost approach method considers the cost of the land plus the cost of constructing the “highest and best use” building from scratch. For example, if the piece of land is worth $100,000, and constructing a multi-tenant retail property would cost $1.2 million, the cost approach would value this commercial real estate at $1.3 million.

This approach is commonly used for new construction and vacant lots. The simplicity of the cost approach is appealing to investors and appraisers. Additionally, the cost approach accommodates for unique factors such as zoning laws to yield an accurate and current valuation.

The Capital Asset Pricing Model

The capital asset pricing model (CAPM) is a comprehensive approach to assess a commercial or retail investment property that includes risk and opportunity cost. The CAPM considers the return on investment (ROI) on a risk-free investment, and labels it as a control, which is referred to as “beta.” Frequently-used betas include US Treasury bonds or real estate investment trusts (REITs). This valuation method is based on the comparison of expected returns between a guaranteed investment and the property in question. If the potential returns on a bond exceed those of a retail investment property, the investment isn’t financially advisable.

The CAPM assumes inherent risk and natural economic behavior that doesn’t always meet expectations. Accordingly, net lease investors find the CAPM useful for estimating the value of a property investment, understanding the approximate risks and establishing optimal tenant leasing structures.

The Sales Comparison Approach

The sales comparison approach (SCA), sometimes referred to as the market approach, utilizes prices from similar and nearby commercial or retail investment properties. This method takes the property’s general attributes into consideration and is best applied over a significant period of time. Investors and appraisers rely on the uniform metrics in this approach, such as price per square foot and recent sale price, to determine the value of the commercial real estate in question.

The SCA has the advantage of simplicity and accessibility, but often neglects the uniqueness and distinctive characteristics of a commercial property. Investors and appraisers find the SCA useful to gain insight on neighborhood pricing trends or for quick property valuations.

Interested in commercial real estate investment? Ground + Space is a leading commercial real estate brokerage firm that specializes in single-tenant and retail NNN investments. Contact us today to find out more about our current listings!


What is a Triple Net Lease?

A triple net lease, or NNN lease in real estate terms, is a type of commercial real estate agreement where the tenant assumes additional financial responsibilities as well as the predetermined rental rate on a commercial property. The different variations of net leases include single, double and triple net leases, which provide for a range of additional expenses covered by the tenant. Below is everything you need to know about triple net leases.  

What are the features of a triple net lease?

In a triple net lease, also known as a net-net-net (NNN) lease, the tenant is required to pay all of the costs associated with property leasing in addition to the agreed-upon rent. These costs include real estate taxes, building insurance and maintenance fees. To account for these accompanying expenses, rent on a triple net property is typically lower than in a standard agreement. Triple net leases are commonly used for longer rental periods, with initial terms beginning at 10 years or more.

What are the advantages of a triple net lease?

Triple net leases provide value for landlords and tenants, as the tradeoffs offer several different advantages for both parties. Due to the longer lease terms, landlords and investors enjoy the simple, consistent and predictable stream of income with infrequent concern regarding lease renewals or rent adjustments. Landlords also avoid maintenance and repair work, which again evades irregularities in the investment. Additionally, these leases tend to involve reliable, quality tenants that contribute to overall property value. The investors can also benefit from the sale and exchange of the NNN property by deferring taxes, using a 1031 Exchange.

The tenants or business operators reap the benefits of significantly lower rent in exchange for assuming the added management responsibilities. Furthermore, business owners may find value in the ability to sell their property to an investor mid-lease while remaining in business as a long-term tenant.

What are the considerations of a triple net lease?

While triple net leases offer many benefits, there are also several things to consider before signing a NNN agreement. Investors should be wary of inflation when setting long-term rental rates, as average returns may be insignificant with little to no rental increases over time. Also, to ensure a worthwhile investment, the experience, reliability and reputation of the tenant should be carefully evaluated. Finally, it’s important for tenants to remember that the additional property expenses may outweigh the lower rent depending on taxes, insurance, and maintenance costs encountered throughout the duration of the lease.

Interested in commercial real estate investment? Ground + Space is a leading commercial real estate brokerage firm that specializes in single-tenant and retail NNN investments. Contact us today to find out more about our current listings!


What is Commercial Real Estate?

What is commercial real estate?

Commercial real estate includes any form of property or real estate used to produce income. Some businesses own the space they occupy, but most commercial real estate is leased from an investor through a net lease broker for one to ten-year terms. An investment lease brokerage firm acts as an in-between for the tenant and landlord or investor and as an advisor for all of their clients. These brokerages facilitate the sale and leasing of commercial properties for business or investment purposes. Distinct types of leases and exchanges are designed to accommodate the variety of commercial real estate property acquisitions.

Types of Properties

Commercial property encompasses many different kinds of spaces. They can be classified into several different categories including office, retail, industrial, multi-family, land and special purpose.

Office real estate is broken down into single or multi-tenant properties and categorized by classes A, B and C. Retail properties include single or multi-tenant buildings and shopping centers comprised of banks, stores, restaurants or strip malls. The industrial commercial real estate category is made up of an array of tenants and building structures, which typically involve construction, manufacturing or production plants and warehouses. Multi-family real estate covers all residential property except for single-family homes and, like office property, is graded for quality by classes A, B and C. Commercial land real estate is undeveloped property, including previously developed land that becomes compromised or condemned. Special purpose commercial property is real estate owned by investors or businesses that do not fit into any of the five main classifications, such as churches, entertainment spaces, hotels or self-storage.  

Types of Property Leases

Commercial real estate brokerages work with tenants and investors to establish a method of leasing business property that satisfies the involved parties. The primary types of commercial real estate leases include gross leases, net leases (single, double or triple), pass-through leases and percentage leases.

Gross leases are simple, rent-only agreements, that typically include agreed-upon future increases.  Single, double, and triple net leases are contract agreements that incrementally supplement the tenant’s financial responsibilities on top of the predetermined rent. Pass-through leases, or modified gross leases, are contracts that make the tenant responsible for a proportional amount of any combination of property expenses in addition to rent. Percentage leases require that the tenant pays rent as well as a percentage of the sales earned from conducting business on the rental property.

Types of Tax-Deferral Property Exchanges

Commercial real estate can be acquired through a few different forms of property exchanges that also allow the deferral of capital gain taxes. The Internal Revenue Service’s (IRS) tax code outlines these exchanges in sections 1031, 1033 and 721.

A 1031 exchange allows investors to exchange ownership of like-kind commercial properties without having to pay taxes on the appreciated capital gain. Section 1033 of the IRS tax code describes a regulation that allows the exchange of equivalent-use properties as a result of involuntary conversion or forced loss. Section 721 contains a tax deferral option that allows investors to exchange commercial property for shares in a Real Estate Investment Trust (REIT).  A 721 exchange puts the ownership and management of the property into the hands of a commercial real estate investment firm.

Interested in commercial real estate investment? Ground + Space is a leading commercial real estate brokerage firm that specializes in single-tenant and retail NNN investments. Contact us today to find out more about our current listings!


Why are Triple Net (NNN) Leases So Popular?

Triple net leases, or NNN leases, have become increasingly popular in recent years, and it is important to know what sets them aside from the single net lease and double net lease. A triple net lease is a more simplistic lease in which the landlord holds little to no responsibility for the NNN lease property. In a triple net lease, the tenant is liable for property taxes, insurance and maintenance, relieving the burden and unpredictability of those costs from the landlord. Maintenance and repairs are additionally at the discretion of the tenant, leaving the landlord with minimal upkeep and few if any fees. The greatest difference between a triple net lease and a single or double net lease is the long-term nature of the contract. Most often, a triple net lease involves a 10-plus year term with a singular tenant.

Who Should Invest in a Triple Net Lease?

Ideal candidates for triple net leases are those seeking real estate investments that provide steady financial growth with relatively low risk and the potential for possible capital appreciation of the property. Investors should be prepared for a 10- to 15-year lease term in which a built-in rent escalation contract is instilled. A triple net lease is especially beneficial for an investor desiring a hands-off approach to managing the net lease property. Instead of micromanaging the operation’s taxes, maintenance and insurance, a triple net lease investor is willing to set aside all of these details to the tenant. While those investing in an NNN lease property accrue a steady profit over the length of the triple net lease, an investor must already hold a net worth of a minimum of $1 million to be qualified.

What are the Primary Benefits?

Simple

Triple net leases offer a low-maintenance upkeep that cannot be found in single and double net leases. With the main responsibilities of taxes, maintenance and insurance being shifted to the tenant for a locked-in term of 10 to 15 years, the investor has little to no responsibilities to manage on a regular basis.

Consistent

The nature of a triple net lease is to have agreed upon terms for the duration of the lease with any set rent increases drafted in the contract. The purpose of this type of an agreement is to ensure that both parties have an awareness of the fiscal elements of the term with no unexpected alterations. The investor then benefits from a consistent and reliable stream of income while the tenant is guaranteed a known price for the duration of the term.

Low Risk

Investing in triple net lease properties has little room for problematic risks thanks to the agreed upon terms of the contract. A triple net lease releases all of the maintenance, repair, taxation and insurance concerns to the tenant, leaving the investor free of any unforeseen costs. Additionally, if the NNN lease property is sold, the investor has the ability to transfer his or her capital into a different triple net lease investment with no taxation thanks to a 1031 tax-deferred exchange.

Interested in commercial real estate investment? Ground + Space is a leading commercial real estate brokerage firm that specializes in single-tenant and retail NNN investments. Contact us today to find out more about our current listings!


What is a Net Lease?

Commercial real estate leases fall primarily into two categories—either a net lease or a gross lease. The most common type of lease in commercial real estate is a net lease because it relieves landlords of serious financial responsibilities and gives tenants more control over how much they’re spending on certain services. But what exactly Is a net lease? Read on to find out everything you need to know about net leases in commercial real estate.

Features of a Net Lease

On top of the pre-established based rent, a net lease requires the tenant to assume responsibility for at least one, if not all, of the additional operating expenses associated with the property. Three different types of leases exist to determine which portion of these additional expenses are to be paid for by the tenant. A single net lease requires the tenant to pay both the rent and the property tax on the property, while a double net lease requires the tenant to pay the rent, the property taxes and property insurance for the space. A triple net lease requires the tenant to pay all of the expenses associated with the property, including the rent, property taxes, insurance, maintenance costs and repairs.

Advantages of a Net Lease

A net lease is a common type of lease in commercial real estate because it benefits both landlords and tenants. For landlords, it alleviates significant financial responsibilities of owning and operating the property. Net leases streamline the process of paying insurance and property taxes and make paying these expenses less complicated and stressful for the landlords. In addition, net leases give landlords a predictable source of income because they eliminate unexpected expenses and alleviate the financial responsibility of property taxes and insurance, which typically fluctuate over time.

Tenants experience significant benefits of net leases as well. Because tenants assume the responsibilities of additional expenses, net leases generally result in lower rental rates of the actual property. Additionally, net leases give tenants more property control because they are held accountable for at least a portion, if not all, of the property expenses. Accordingly, a considerable amount of property control is allotted to the tenant. Renting under a net lease gives tenants a closer experience of property-owning than a typical renter.

Considerations of a Net Lease

Net leases also can have some drawbacks if the building or property is not properly maintained and managed. For tenants, the maintenance costs might outweigh the lower cost in rent if there are constant major repairs. Likewise, most landlords prefer insurance and tax payments to pass through them to ensure the amount is correct and on time, which at times may complicate the process more than simplify it.

Interested in commercial real estate investment? Ground + Space is a leading commercial real estate brokerage firm that specializes in single-tenant and retail NNN investments. Contact us today to find out more about our current listings!