How to underwrite an industrial NNN deal
Worked on a 180,000 SF single-tenant building. The income is the most predictable of any asset class, and the risk is the least gradual — which makes several of the standard metrics quietly inapplicable.
A 180,000 SF single-tenant building, worked
Sample inputs
- Building area
- 180,000 SF
- Tenants
- One
- Rent
- $7.25/SF NNN
- Escalations
- 2.5% annually
- Term remaining
- 8 years
- Landlord expenses
- $53,100
- Purchase price
- $18,550,000
- Loan
- $11,130,000 @ 6.60%
One tenant, eight years remaining, 2.5% fixed escalations. The kind of asset people describe as bond-like, and the description is fair for exactly as long as the lease runs.
Rent is $1,305,000. Landlord expenses are $53,100 — management and a replacement reserve — which is 4.1% of rent. NOI is $1,251,900: a 6.749% cap rate, 1.468x coverage, 11.248% debt yield.
Triple net does not mean no landlord expense. It means a very small one, and the difference matters when you compare this to a gross-leased building where 35% of rent disappears before NOI.
30.57 points of cushion on a building that cannot be 85% occupied
Run break-even occupancy on this deal and it returns 69.43%, with 30.57 points of headroom against current occupancy. The arithmetic is correct. The measure does not apply.
- Occupancy here is 100% or 0%There is one tenant. Every value between those two is unreachable, including every value the cushion is describing.
- Ask about months, not percentagesHow long can you fund debt service with no income at all? Against a realistic downtime assumption, that is a question with an actionable answer.
- The failure is a cliff, not a slopeA multi-tenant building degrades. This one is fully covered or fully dark, and the transition happens on one known date.
Debt
DSCR
1.47x
While the lease runs
Debt yield
11.25%
Lender floor 10%
Break-even occupancy
69.4%
Not reachable — one tenant
LTV
60.0%
$11,130,000 loan
- Annual debt service
- $852,993
- Monthly debt service
- $71,083
- Rate / amortization
- 6.60% / 30 yr
- Landlord expense ratio
- 4.1% of rent
Coverage is strong and stable for eight years. The question this panel cannot answer is what happens in year nine.
The cliff, priced
The lease ends. Assume the tenant leaves and you re-let the whole building at $7.75 a foot — a higher face rate than the departing tenant paid — on twelve months of downtime, three months free, a ten-year term, $15 a foot of improvements and a 4% commission.
| Duration | Cash | |
|---|---|---|
| Downtime | 12 months | $0 collected |
| Free rent | 3 months | $0 collected |
| Tenant improvements, $15/SF | — | ($2,700,000) |
| Leasing commission, 4% | — | ($558,000) |
| Debt service while dark, 15 months | — | ($1,066,241) |
| Total funding required | — | ($4,324,241) |
$4,324,241. Improvements and commission, plus fifteen months of debt service arriving while the building earns nothing.
The original equity cheque was $7,420,000. The cliff costs 58.3% of it, in one concentrated period, on a date you have known since the day you bought.
And the new lease, despite the higher face rate, collects $5.28 per foot net effective across its cycle — below the $7.25 the old tenant was paying.
A lease is only as good as whoever signed it
With one tenant there is no diversification to fall back on. The covenant behind the rent is not a factor in the analysis, it is the analysis.
- 100% of income, one signatureWeighted by rent, every concentration measure returns the same answer. What varies is what stands behind it, and whether anything does.
- Read the guaranty, do not assume itDealWise reads the guarantor language out of the lease and reports what is there — including nothing recorded. It does not rate the tenant, and neither does the document.
Tenant credit — single tenant
- Corporate guaranty100%
The sole tenant
- Personal guaranty0%
None
- None recorded0%
None
Weighted by rent, as always — which on one tenant is the least informative it will ever be. The question moves entirely to what the covenant is worth, and the lease does not say.
What to check before you believe an industrial NNN pro forma
- What is actually net? Roof and structure are frequently the landlord’s even in a triple-net lease, and they are the expensive two.
- Where will the rent sit against market at expiry? Escalations take this one to $8.62 by year eight. Comfortably under market means a renewal; well over it means a cliff.
- How long is the downtime for a building this size? Large single-tenant space re-lets slowly, and the assumption drives the entire funding requirement.
- Does the hold period end before the lease does? Selling with two years of term left is a very different transaction from selling with eight.
- Is there a reserve, and is it enough? $0.15 a foot covers routine items, not a roof.
- What is the guaranty, and is it recorded at all? With one tenant this is not one factor among several. It is the deal.
Questions people ask
What does triple net actually mean for the landlord?
The tenant reimburses taxes, insurance and maintenance, so the owner's expense line is small — here $53,100 against $1,305,000 of rent, about 4.1%. Small is not zero: management and a replacement reserve stay with the owner, and roof and structure often do too depending on the lease.
Why is a single-tenant NNN deal often described as bond-like?
Because the income is contractual, the escalations are fixed and the expense exposure is minimal, so the cash flow is unusually predictable. The comparison holds right up until the lease ends — at which point a bond returns your principal and a building hands you an empty 180,000 square feet.
Is break-even occupancy useful for a single-tenant building?
No, and this is worth understanding rather than memorising. The calculation is perfectly correct — on the building worked through here it returns 69.43%, with 30.57 points of cushion. But occupancy on a single-tenant asset can only ever be 100% or 0%, so both reachable states sit on opposite sides of that threshold and the cushion describes a condition the building cannot occupy.
What should I look at instead?
Months of coverage. Ask how long you can fund debt service with no income, and compare that against a realistic downtime assumption for a building of that size and specification. That turns a meaningless percentage into a number you can act on.
How much does re-letting a single-tenant industrial building cost?
On this example, $4,324,241 — improvements and commission plus fifteen months of debt service while the building is dark. That is 58.3% of the original equity, and it arrives in one concentrated period rather than spread across a hold.
Do fixed escalations protect me?
They protect the contractual income and they say nothing about where it sits relative to the market. Escalating at 2.5% takes this rent to $8.62 by year eight. Whether that is comfortably under market or awkwardly over it decides whether the tenant renews, and it is the single most useful thing to track across the hold.
Keep reading
Break-even occupancy
The measure this page argues against using here. Free tool.
Tenant credit & guaranty
What the covenant behind the rent actually is.
Lease guaranties explained
Why a blank column is not a denial.
Office, worked
The other guide where re-leasing cost dominates.
NNN, gross and modified gross
What 'net' does and does not cover.
Debt yield calculator
The test a lender will apply first. Free, no signup.
Price the cliff before you price the lease.
Upload the lease and DealWise reads the term, the escalations and the guarantor language, then models what re-letting the building would actually require — in the months it would land. Free plan, no credit card.