NNN benchmarks provide systematic framework for evaluating every triple-net opportunity consistently. Current benchmarks represent market pricing and should be updated quarterly as fundamentals shift. These benchmarks help quickly identify overpriced opportunities and undervalued deals.
Cap Rate Benchmarks by Tenant Credit
Investment-grade tenants (BBB-/Baa3+) trade at 5.3-6.0% cap rates with 2.0-2.5% rent growth, delivering 7.3-8.5% all-in returns. Strong private (equivalent BBB) trades at 6.0-6.8% with 1.5-2.5% growth, delivering 7.5-9.3% returns. Moderate private (equivalent BB) trades at 6.8-7.5% with 1.0-2.0% growth, delivering 7.8-9.5% returns. Below-investment-grade trades at 7.5-8.5%+ with 0-1.0% growth, delivering 7.5-9.5% returns.
Investment-grade commands tightest pricing due to low default risk. Strong private trades at 70-80 bps premium reflecting execution risk in assessing credit. Below-investment-grade reflects meaningful credit risk.
Absolute Minimum Requirements
Before evaluating any deal: DSCR must be 2.0x or above. Debt-to-EBITDA must be under 4.0x. Lease terms must be 7 years minimum. Annual base rent must be at least $500k. If a deal fails these thresholds, pass immediately. These are disqualifiers, not guidelines.
Benchmark Usage: At 5.5% cap rate: is tenant investment-grade (fair value) or strong private (possibly overpriced)? Use benchmarks to calibrate whether pricing is fair relative to credit quality.
FAQ
Q: What's a good all-in return target?
A: Minimum 7.5-8.0% all-in returns (cap rate plus rent growth) for 10+ year holds. If a deal achieves only 7.0-7.5%, risk-reward is poor without compelling reasons.