A triple net lease — NNN — is a commercial lease structure in which the tenant pays base rent plus three additional cost categories: property taxes, building insurance, and maintenance expenses. The tenant effectively takes on the obligations a typical property owner would carry, leaving the landlord with a passive investment that generates predictable net rent with minimal operational responsibility. NNN leases are the dominant structure for freestanding single-tenant retail (fast food, pharmacies, dollar stores), for institutional industrial properties, and for many ground leases. Multi-tenant buildings sometimes use modified NNN structures where the tenant pays its pro-rata share of the three categories rather than the full amount.
The distinction between standard NNN and absolute NNN matters in negotiation. In a standard NNN, the tenant pays taxes, insurance, and maintenance, but the landlord typically remains responsible for roof and structure — the building envelope and the load-bearing elements. In an absolute NNN (sometimes called a bondable NNN), the tenant takes on everything, including roof and structure, environmental remediation, capital replacements, and even casualty risk. Absolute NNN structures are common in sale-leaseback transactions where the operating company wants to monetize the real estate while retaining total control. The difference materially affects how the investment is underwritten, how it's priced, and what the landlord's ongoing obligations look like.
Institutional investors treat high-quality NNN leases as bond-like instruments. A well-located property with a 15-year NNN lease to an investment-grade tenant generates rent that is predictable, escalates on a schedule defined in the lease, and carries minimal management complexity — the tenant handles almost everything, and the landlord collects the check. Cap rates on these assets are consequently low, often comparable to corporate bond yields from the same credit quality. The tenant's credit rating is the primary value driver: an NNN lease to a AAA-rated corporation trades at materially lower cap rates than an identical lease to an unrated franchisee, because the credit risk is fundamentally different even though the physical property is identical.
The risks in NNN investing cluster around credit, term, and renewal. Credit risk is obvious: if the tenant fails, the landlord inherits a vacant special-purpose building that may be difficult to re-tenant at similar economics. Term risk is the approach of lease expiration — a 10-year NNN lease with one year remaining is a very different investment from the same lease at origination, because the landlord suddenly faces leasing risk, broker commissions, tenant improvement allowances, and possible downtime. Renewal negotiations often see the tenant demand rent reductions, TI allowances, or structural improvements that the absolute NNN format had previously assigned to them. Sophisticated NNN investors track lease term carefully across their portfolios and begin renewal planning years before expiration.
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