Triple net industrial still leaves the roof and structure with the landlord

Question

Many people come to industrial looking for the version of commercial real estate where the owner collects a check and does not get a call. Most of what is written about it says industrial leases are net, meaning the tenant pays taxes, insurance and maintenance, so the landlord's job is basically depositing money. Read a typical lease on a 40,000 sf building and the picture is narrower. The tenant covers taxes, insurance, HVAC service, interior repairs, landscaping and snow. The landlord keeps roof structure, foundation, exterior walls and the parking lot. It is common for that roof to be 19 years old and for the broker to describe that as normal for a NNN deal, which raises the question of what else is normal that a first time buyer does not know about. So when people in this room say net lease industrial is defensive income, are they setting aside a reserve for those landlord items, or is the assumption that you sell before the roof comes due? Better to understand the boring failure mode now than discover it 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 are reserving 20 cents a foot a year you have 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 industrial still leaves the roof and structure with the landlord

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