Spread (Cap Rate Spread)

The cap rate spread is the difference between NNN cap rates and a benchmark risk-free rate (typically the 10-year U.S. Treasury yield), representing the risk premium investors earn for owning real property. For example, if NNN cap rates average 6.5% and the 10-year Treasury yields 4.3%, the spread is 220 basis points. This spread compensates for illiquidity (NNN takes 3-6 months to sell vs. instant Treasury sales), credit risk (tenants can default), and operational complexity. Historical NNN-to-Treasury spreads typically range from 150-300 basis points. When spreads are wide (250+ bps), NNN is considered relatively cheap and attractive. When spreads are narrow (<150 bps), NNN may be overpriced relative to risk-free alternatives. Monitoring spread trends is essential for timing NNN acquisitions.