CRE 101 · deweyluong.realtor

Single-Tenant Net Lease Explained: How Tenant Credit, Lease Term, and Rent Bumps Price an STNL Property in Georgia

Two freestanding buildings paying the exact same rent can sell $400,000 apart — because in a single-tenant deal you are buying a lease contract first and a building second. By Túy “Dewey” Luong, CCIM — Founding Broker, SERHANT. Atlanta · 318 closed sales / $281.2M career volume · 678-707-2498

A single-tenant net lease (STNL) property — a drive-thru pad, a pharmacy, a dollar store, a bank branch, an auto-service building leased to one tenant — is the closest thing commercial real estate has to a bond: one tenant, one contract, one check. That simplicity is why STNL is a favorite 1031 exchange replacement property, and it is also where first-time buyers overpay most predictably: they price the rent and ignore the three things that actually set the price — who guarantees the rent, how much lease term is left, and what the real estate is worth the day the tenant leaves. This page walks through those three drivers, the lease structures underneath them, a full worked example where identical rent produces two prices $400,000 apart, and the Georgia-specific checks. The worked example uses made-up, rounded numbers to teach the mechanics. This page is general education, not investment advice — read the actual lease and guaranty before pricing any real deal.

What the landlord actually owns: lease first, building second

• The lease contract: a stream of rent from one identified payer, for a stated remaining term, with stated bumps and stated expense duties. This is what the cap rate is really pricing.
• The real estate: land, location, and a building that has to be re-let, re-purposed, or sold if the contract ends. This is the residual — the second underwrite most buyers skip.
• The split matters more every year: with 15 years left, the contract dominates the value. With 3 years left, the residual dominates. The price should migrate from contract math to real-estate math as the term burns off — when it does not, the buyer is overpaying.

Driver 1: who guarantees the rent

• Corporate guaranty: the national parent company owes the rent. Strongest paper; trades at the lowest cap rates.
• Franchisee guaranty: a local or regional operating LLC owes the rent, however famous the brand on the sign is. The buyer is underwriting that LLC — its store count, its financials, its other obligations — not the national brand.
• No guaranty / store-level lease only: the rent is only as good as that one store's sales. Price it that way.
• Read the paper, not the pitch: exact guarantor entity name, whether the guaranty survives assignment, whether sales reporting is required, and whether the entity on the lease is the entity that owns the store. Get the lease and guaranty in due diligence and confirm the tenant's position with an estoppel.

Driver 2: lease term remaining and rent bumps

• Term remaining is the clock on the income. A 15-year remaining term is a long, financeable income stream. A 3-year remainder is a short one followed by a re-leasing event the buyer will pay for.
• Options are the tenant's, not yours. Five 5-year options do not extend the guaranteed income by one day — the tenant exercises them only if the rent is attractive to the tenant. Underwrite the firm term; treat options as upside, never as term.
• Bumps defend the income while the clock runs. 10% every five years, 2% annually, and flat rent are three different assets at the same starting rent: on $120,000, 2% annual bumps reach about $146,279 by year 11, while flat rent is still $120,000 — and worth less in real terms every year.
• Burn-off is real: with no renewal, each passing year shortens the contract, so value can fall even while rent is collected exactly on time. The rent checks are not the whole return; price the exit from day one.

Driver 3: the lease structure underneath

• Absolute NNN: tenant pays taxes, insurance, and maintenance, and in a true absolute (bond-type) lease also roof and structure. Cleanest income; tightest pricing. See NNN Lease for the base mechanics.
• NN (double net): tenant pays taxes and insurance; landlord keeps roof, structure, or parking. The retained items are real costs — subtract them from the rent before applying a cap rate, and compare against absolute-NNN deals only after that adjustment.
• Ground lease: the investor owns the land and the tenant owns the building — a different asset again, priced on land residual and leasehold terms; see Ground Lease.
• Percentage rent and sales: some retail STNL leases add overage rent above a sales breakpoint; the base rent is what gets priced, and reported store sales are the earliest warning system for renewal odds.

Worked example. The numbers below are made up and rounded to teach the mechanics. This is not a real property.

• A 4,000 SF freestanding retail pad in Gwinnett on a strong corridor, absolute NNN, base rent $120,000 a year — in an absolute NNN structure the rent is the NOI (see Cap Rate and NOI).
• Scenario A — 15 years left, corporate guarantor, 2% annual bumps: at a 6.00% cap rate, value = $120,000 ÷ 6.00% = $2,000,000 ($500 per SF).
• Scenario B — 3 years left, franchisee guarantor, flat rent: at a 7.50% cap rate, value = $120,000 ÷ 7.50% = $1,600,000 ($400 per SF).
• The gap: $2,000,000 − $1,600,000 = $400,000, a 20% discount — same rent, same building, same street. The entire difference is the contract: guarantor strength, term, and bumps.
• The loan cross-check on Scenario A: a 65% loan is $1,300,000; at terms producing about $96,000 a year of debt service, DSCR = $120,000 ÷ $96,000 = 1.25x — exactly at the floor many lenders use, which is why even the strong scenario rarely funds a higher price with more debt.
• The residual cross-check on Scenario B: if the tenant leaves, assume market rent of $100,000 and a 7.00% re-let cap rate: $100,000 ÷ 7.00% ≈ $1,428,571, before downtime, TI, and leasing commissions — subtract an assumed $150,000 for those and the residual indication is about $1,278,571. Scenario B's $1,600,000 price is really $1,600,000 paid for three years of rent plus that residual; the buyer should be able to say so in one sentence before offering.

The lesson: quote an STNL price as rent ÷ cap rate only after you have named the guarantor, counted the firm years left, read the bump schedule, and priced the day the tenant leaves. If any one of those four is unknown, the price is a guess.

Georgia and Gwinnett specifics

• Franchisee paper is common here: a large share of Metro Atlanta and Gwinnett STNL offerings — restaurants, auto service, convenience — carry franchisee guaranties. The brand on the offering cover is marketing; the entity on the guaranty is the credit.
• Corridor land carries the residual: pads on Buford Highway, Pleasant Hill Road, and Jimmy Carter Boulevard corridors re-let on land value and traffic, not on the departing tenant's box. A specialized building on a weak site has the thinnest residual of all.
• Taxes reset at sale: the county can reassess after purchase, and in an absolute NNN lease the tenant pays the tax — but a tax spike is still the owner's problem at renewal and resale time. The 45-day window in Property Tax Appeals applies to the owner of record.
• 1031 timelines compress diligence: Georgia STNL pads are common 1031 targets, and the 45-day identification clock tempts buyers to price before the guaranty and estoppel arrive. The clock is a reason to pre-read faster, not to skip the read.

Four mistakes STNL buyers make

• Pricing the brand instead of the guarantor — the sign is not the credit; the entity on the guaranty is.
• Counting option periods as term — options belong to the tenant; only the firm term is income you own.
• Comparing an NN deal to absolute-NNN pricing without adjusting — landlord-retained roof, structure, and parking costs come out of the rent first.
• Skipping the residual underwrite — if you cannot price the property empty, you do not know what you paid for the lease.

Cho nhà đầu tư người Việt

Bất động sản STNL — một tòa nhà chỉ có một khách thuê duy nhất như drive-thru, nhà thuốc, cửa hàng tiện ích hay trạm dịch vụ xe — trông đơn giản nhất trong các loại bất động sản thương mại: một khách, một hợp đồng, một tấm check mỗi tháng. Nhưng giá của nó không nằm ở tòa nhà — nó nằm ở hợp đồng. Cùng một tiền thuê $120.000 một năm: nếu còn 15 năm và công ty mẹ toàn quốc bảo lãnh, thị trường định giá $2.000.000 ở cap rate 6,00%; nếu chỉ còn 3 năm và franchisee địa phương bảo lãnh, chỉ còn $1.600.000 ở cap 7,50% — chênh $400.000 trên cùng một tòa nhà.

Ba câu hỏi phải trả lời được trước khi trả giá: (1) Pháp nhân nào đúng tên trên bảo lãnh — đọc hợp đồng và văn bản bảo lãnh, không đọc trang bìa quảng cáo. (2) Số năm chắc chắn còn lại là bao nhiêu — các kỳ option là quyền của khách thuê, không phải thu nhập của bạn. (3) Nếu khách rời đi, đất và vị trí cho thuê lại được bao nhiêu, mất bao lâu, tốn bao nhiêu. Đây là thông tin giáo dục chung, không phải tư vấn đầu tư.

Frequently asked questions

What is a single-tenant net lease (STNL) property?

An STNL property is a commercial property leased to one tenant under a net lease, most often a freestanding retail pad, drive-thru, bank branch, pharmacy, dollar store, or medical or auto-service building. The tenant pays base rent plus most or all operating costs. Investors like the format because the income is one contract with one payer: easy to underwrite, easy to finance, and a common 1031 exchange replacement property. The same simplicity is the risk: when the one tenant leaves or fails, the income goes to zero all at once, so the lease, the guarantor, and the leftover real estate each have to be underwritten separately.

Why does the same rent produce two very different prices?

Because the buyer is really buying the remaining lease contract first and the building second. On this page's worked example, a property paying $120,000 a year prices at $2,000,000 at a 6.00% cap rate when a corporate guarantor has 15 years left, and at $1,600,000 at a 7.50% cap rate when a franchisee guarantor has 3 years left. That is a $400,000 difference, 20%, on identical rent from an identical building. The discount in the second case is the market pricing the risk that the income stops soon and the property has to be re-let at market rent, on market downtime, with new tenant-improvement and leasing-commission costs.

Who is the guarantor, and why does the exact entity matter?

The guarantor is the legal entity that stands behind the rent if the store-level tenant does not pay. A lease signed by a national corporate parent is a different asset from the same brand's lease signed by a local franchisee LLC, even when the sign over the door is identical. Before pricing any STNL deal, read the lease and guaranty for the exact entity name, check whether the guaranty survives an assignment or sale of the store, and confirm whether the entity reporting sales and financials is the same entity that owes the rent. Brand strength is not guarantor strength.

What happens to value as the lease term burns off?

Every year that passes with no renewal shortens the contracted income, so all else equal the cap rate widens and the price falls faster than rent alone would suggest — investors call this term burn-off. Two defenses exist: scheduled rent bumps, which grow the income while the term shrinks (2% annual bumps turn $120,000 into about $146,279 by year 11), and strong residual real estate — a corner pad whose land and market rent would re-let well even if the current tenant leaves. A short-term deal priced like a long-term deal, with weak residual value underneath, is the classic STNL trap.

Bất động sản cho một khách thuê duy nhất (STNL) là gì, người mua người Việt cần kiểm tra gì trước?

STNL là tòa nhà thương mại chỉ cho một khách thuê duy nhất thuê theo hợp đồng net lease — thường là pad bán lẻ độc lập, drive-thru, ngân hàng, nhà thuốc hoặc cửa hàng tiện ích. Ba việc phải kiểm tra: (1) Ai bảo lãnh tiền thuê — công ty mẹ toàn quốc hay LLC franchisee địa phương; logo trên biển hiệu không phải là người bảo lãnh. (2) Hợp đồng còn bao nhiêu năm — cùng $120.000 tiền thuê một năm, còn 15 năm với bảo lãnh corporate được định giá $2.000.000 ở cap 6,00%, còn 3 năm với bảo lãnh franchisee chỉ $1.600.000 ở cap 7,50% trong ví dụ trên trang này. (3) Đất và vị trí còn lại khi khách đi — tiền thuê thị trường, thời gian trống và chi phí cho khách mới. Đây là thông tin giáo dục chung, không phải tư vấn đầu tư.

This page is general education, not investment, legal, tax or financial advice. Every figure in the worked example is made up and rounded to teach the mechanics; cap rates, rents, and loan figures shown are illustrative assumptions, not market quotes for any specific property. Túy “Dewey” Luong, CCIM — Founding Broker, SERHANT. Atlanta · 678-707-2498 · dewey.luong@serhant.com