Triple net apparently still leaves the roof with me

Question

I went into this looking for the version of commercial real estate where I collect a check and don't get a call. Everything I read said industrial leases are net, meaning the tenant pays taxes, insurance and maintenance, so the landlord's job is basically depositing money.

Then I read an actual lease on a 40,000 sf building. The tenant covers taxes, insurance, HVAC service, interior repairs, landscaping, snow. Landlord keeps roof structure, foundation, exterior walls and the parking lot. The roof is 19 years old and the broker described that as "normal for a NNN deal," which made me wonder what else is normal that I don't know about.

So when people in this room say net lease industrial is defensive income, are they setting aside a reserve for those items, or is the assumption that you sell before the roof comes due? I'd rather understand the boring failure mode now than find out in year six.

brandonlee36 · Answer

Price the roof and it stops being abstract. A TPO tear-off and replace on 40,000 sf runs somewhere around $8 to $12 a foot depending on insulation and deck, so $320k to $480k. If you're reserving 20 cents a foot a year you've saved $8k. That gap is the whole argument. Also, even with the tenant reimbursing insurance you carry your own property and liability policy and you name them as additional insured, so read the insurance article as carefully as the repair one.

Triple net apparently still leaves the roof with me

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