When a NNN tenant goes dark but keeps paying, what does that do to the sale price?
A retailer with eight years of term remaining stops operating out of the location, locks the doors, and mails the rent on time every month. The lease is intact, the guaranty is intact, and the income stream looks identical on paper to any other NNN with eight years left. The question is whether a buyer prices it that way.
Most buyers will not, and the cap rate spread a dark box commands over an operating location in the same corridor is the interesting number to think about. A buyer underwriting a dark box is really underwriting the probability that the tenant exercises its termination right, stops paying before expiry, or that the box sits vacant the day after the lease ends with no realistic re-tenanting story. A pharmacy dark on a main street corner prices differently from a dollar store dark on a rural highway, and that gap is entirely about what the real estate does on its own once the income stops.
The clause that matters most is usually the one governing co-tenancy and operating covenants, if any exist, but in a pure NNN the lease itself often says nothing about dark operations, which means the tenant is technically compliant and the buyer is left to price the residual risk on their own. Lenders tend to see it before buyers do, and a dark box sometimes finds that the financing market has moved before the acquisition market catches up.
What I am trying to work out is how much of the cap rate penalty on a dark box is actually re-tenanting risk versus lender conservatism, and whether those two things converge at the same number or price differently depending on asset class. Has anyone seen a dark box trade where the buyer broke out those two components explicitly, rather than just taking a blended spread?
