assessmentDEAL ANALYSIS

The 5-Step Framework for NNN Deal Evaluation

Master the systematic underwriting process used by institutional investors to evaluate triple-net properties, from initial screening through final returns modeling.

Target Cap Rate

6.25%

Min DSCR

1.25x

Avg Lease Term

12 yr

IG Tenant %

65%

Typical Deal

$2.5M

Data as of Q1 2026 · Sources: Federal Reserve (FRED), CoStar, CBRE Research

The 5-Step Underwriting Framework

A systematic approach to evaluating property fundamentals, tenant credit, market conditions, and projected returns.

Step 1

Initial Screening

• Property type & location fit
• Physical condition assessment
• Lease structure review
• Preliminary cap rate estimate

Step 2

Tenant Credit Analysis

• Credit rating & stability
• Financial performance trends
• Industry headwinds assessment
• Bankruptcy risk evaluation

Step 3

Lease Structure Review

• Remaining lease term adequacy
• Rent escalation provisions
• Renewal probability assessment
• Tenant responsibility obligations

Step 4

Market & Location

• Comparable property analysis
• Demographic & economic trends
• Competitive landscape evaluation
• Long-term growth potential

Step 5

Returns Modeling

• Cash flow projections
• IRR & equity multiple targets
• Exit cap rate assumptions
• Stress test scenarios

Key Underwriting Metrics

Critical financial and operational ratios that determine deal viability and expected returns.

Cap Rate Target6%

DSCR Min1.25x

Max LTV65%

Lease Remaining10yr

Rent Coverage2x

How Metrics Interrelate

These metrics form an interconnected system. Lower DSCR may justify lower LTV. Strong credit tenants support higher LTV. Longer lease terms reduce cap rate premiums. Rent coverage ratios protect during economic downturns.

Red Flag Alert

If any metric falls below benchmark by >20%, conduct deeper analysis or pass on the deal.

Analysis Deep Dive

Initial Screening Criteria

The first filter in deal analysis evaluates property fundamentals: location grade (A/B preferred), physical condition (Class A/B), and lease structure. Skip properties with <8 years remaining lease, subpar cap rate >150 bps above benchmark, or poor credit-quality tenants (below B rating). This stage eliminates 70-80% of deal flow quickly.

Red Flags to Watch

Early warning signs that may indicate elevated risk or deal rejection.

warning

Lease Expiration

Less than 8 years remaining—refinancing risk spike.

trending_down

Weak Credit Tenant

Sub-B rating or negative same-store sales trends.

location_off

Market Decline

Rising vacancy >15%, declining population trends.

scale

High Leverage

LTV >70% or DSCR <1.25x—limited cushion.

storefront

Obsolete Asset Type

Brick-and-mortar retail in strong e-commerce markets.

timeline

Undisclosed Tenant Risk

Pending credit downgrade, store closure rumors.

Key Takeaways

check_circleFollow a systematic 5-step process to evaluate every deal uniformly and reduce bias.

check_circleVerify tenant credit quality—it's the bedrock of NNN deal performance.

check_circleStress test returns; target 9%+ IRR even if cap rates expand 200+ bps at exit.

check_circleNever ignore market fundamentals; location drives long-term value preservation.

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Data and analysis on this page are for informational purposes only and do not constitute investment, financial, or tax advice. Figures may be estimated from publicly available sources and should be verified with primary data providers (CoStar, MSCI RCA, CBRE, FRED) before use in investment decisions. Past performance does not guarantee future results.

Market Data

10Y Treasury4.02%—

Fed Funds3.64%—

NNN Avg Cap5.87%—

30Y Mortgage5.98%—

CMBS Spread224 bps—

NNN Spread185 bps—