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Four primary pathways—understand ideal timing, tax implications, cap rate impact, and risk level for each.
Timing: Year 10+
Tax: Lowest tax drag; depreciation shelter continues
Cap Rate: -50 to +150 bps
Key Risk: Refinancing risk, tenant credit drift
Timing: Year 7 (sweet spot)
Tax: 20% cap gains; depreciation recapture
Cap Rate: -100 to +200 bps
Key Risk: Market timing, buyer availability
Timing: Year 5-10
Tax: Tax-deferred; no cap gains tax on sale
Cap Rate: Target same cap rate or better
Key Risk: Reinvestment deadline pressure, exchange failure
Timing: Year 5-7
Tax: No tax event; continued depreciation
Cap Rate: No change; debt rates higher
Key Risk: Higher leverage, covenant pressure
How hold period and exit cap rate interact to drive final IRR—critical planning tool.
Year 7 is the "Goldilocks" exit point: 12.1% IRR, sufficient rent growth accumulation, minimal lease risk. Year 5 exits (10.8% IRR) acceptable if cap rate compression. Year 10+ holds (13.2% IRR) maximize rent growth but refinancing risk increases.
7-year holds are institutional standard for stabilized NNN. Balances rent growth accumulation (3-4 years of rent escalation), tenant credit stability, and refinancing timing. Longer holds (10yr+) increase refinancing and lease-expiration risk but maximize absolute returns.
Exits at Year 3-4 require 100+ bps cap rate compression to hit 9%+ IRR targets. Early exits risky if market cap rates widen.
NNN exit markets follow 3-5 year cycles. 2021-2022 saw peak buyer appetite and cap rate compression; 2023-2024 normalized. Current market favors well-leased, credit-quality NNN assets; weak credit tenants face 150-250 bps cap rate premiums. Monitor institutional capital deployment ($15-20B quarterly in NNN). Avoid forced sales in down markets; build optionality into hold period targets.
How market conditions have shifted—understanding cycles helps time exits.
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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.