Seller Guides
Triple Net (NNN) Properties: The Most Popular 1031 Exchange for LA Apartment Owners
By Glen Scher and Filip Niculete| LAAA Team at Marcus & Millichap | April 3, 2026
If you own an apartment building in Los Angeles and you are thinking about selling, there is a good chance someone has told you to "look at NNN." They are right. Triple net lease properties are the single most popular 1031 exchange destination for LA apartment building owners, and for good reason.
Here is the math that drives the entire strategy: your LA apartment building probably trades at a 3.5% to 4.5% cap rate. You are personally managing tenants, handling maintenance calls, navigating RSO or AB 1482 compliance, and dealing with rising insurance and water costs. Meanwhile, a single-tenant NNN property in a secondary market trades at a 5.5% to 7.0% cap rate, the tenant pays every operating expense, and your phone never rings. Same equity, dramatically better income, zero management. Approximately 60% of our exchange clients choose this path.
After facilitating over 100 exchanges for LA apartment building owners, we have seen NNN properties transform our clients' financial lives. On average, our NNN exchange clients see a 55% increase in net cash flow compared to what their apartment buildings were generating. Here is everything you need to know.
What Is a Triple Net (NNN) Lease?
A triple net lease is a commercial lease structure where the tenant pays all three major operating expenses on top of base rent: property taxes, property insurance, and maintenance/repairs. The "three nets" are:
Net 1: Property Taxes. The tenant pays the full property tax bill directly or reimburses the landlord.
Net 2: Insurance. The tenant carries and pays for property insurance (building coverage, liability, often business interruption).
Net 3: Maintenance and Repairs. The tenant is responsible for all maintenance, repairs, and upkeep of the building, parking lot, landscaping, HVAC, roof, and structure.
If you are an apartment building owner, this is the opposite of what you are used to. In a multifamily gross lease, you collect rent and pay everything else. In a triple net lease, the tenant pays everything. Your only responsibilities as landlord are collecting the rent check and, depending on the lease, approving major structural modifications.
There are important variations:
Absolute NNN (Bond Lease). The tenant is responsible for literally everything, including roof and structure replacement. The landlord has zero obligations. This is the gold standard for passive investors and is most common with investment-grade tenants like Walgreens, Dollar General, and McDonald's.
Standard NNN. The tenant pays the three nets, but the landlord may retain responsibility for roof and structural repairs above a certain dollar threshold. Read the lease carefully.
Modified NNN (NN or NNN with Landlord Caps). The tenant pays some but not all of the three nets, or the landlord shares certain costs above a cap. Less passive than true NNN.
For a 1031 exchange buyer seeking passive income, you want absolute NNN or strong standard NNN leases. Modified NNN leases can still work but require more involvement.
Why LA Apartment Owners Are the Perfect NNN Buyers
We see four common profiles among our clients who exchange into NNN properties:
The Retirement Transition. You have managed apartment buildings for decades. You are tired of tenant calls, deferred maintenance on aging buildings, and keeping up with changing rent control laws. You want monthly income without lifting a finger. A corporate-backed NNN lease gives you exactly that: a 10 to 20 year income stream guaranteed by a national company, with zero management.
The Partnership Exit. Two or more partners own an apartment building together and want to go separate ways. Selling and splitting the proceeds triggers a massive tax event. Instead, you do a 1031 exchange and each partner takes down their own individual NNN property. One partner gets a Chick-fil-A in Texas. The other gets a Dollar General in Tennessee. Clean split, no taxes, everyone gets exactly what they want.
The Rent Control Escape. Your building is subject to RSO or AB 1482. Annual rent increases are capped at 3% to 4%. Your expenses keep rising. Your return on equity keeps shrinking. Meanwhile, a NNN lease has contractual rent escalations written into the lease for 15 to 20 years, regardless of what any local government does. You are trading regulatory uncertainty for contractual certainty.
The Cash Flow Optimizer. You have significant equity in a low-cap-rate LA apartment building that is earning a mediocre return. A $3 million building at a 3.5% cap generates $105,000 in NOI, but after management, reserves, and vacancy your actual cash flow is closer to $70,000 to $80,000. Exchange into a NNN property at a 6.0% cap and your $3 million in equity generates $180,000 in NOI with no expenses to deduct. That is a 55% to 130% jump in actual cash flow.
The Financial Case: LA Apartments vs. NNN Properties
Here is a side-by-side comparison using current market data:
| LA Apartment Building | NNN Property (Secondary Market) | |
|---|---|---|
| Typical Cap Rate | 3.5% to 4.5% | 5.5% to 7.0% |
| Operating Expense Ratio | 40% to 50% of EGI | 0% to 5% of rent |
| Management Burden | Tenant calls, maintenance, RSO compliance, turnover | None (tenant handles everything) |
| Lease Term | Month-to-month or 1-year | 10 to 20 years (corporate guarantee) |
| Rent Growth | RSO: 3-4%/yr capped; market: variable | Contractual: 1.5-2%/yr written into lease |
| Income Predictability | Variable (vacancy, collections, surprise repairs) | Fixed (corporate tenant, long-term lease) |
| Tenant Count | 10 to 50+ individual tenants | 1 corporate tenant |
| Vacancy Risk | Spread across many units | Binary: 100% occupied or 100% vacant |
| Financing | 65-75% LTV, competitive rates | 50-65% LTV, rate tied to lease term |
| Value-Add Potential | High (renovate, raise rents, reduce expenses) | Limited (income is contractual) |
The takeaway: NNN properties trade higher cap rates for lower risk and zero management, but concentrate your income in a single tenant rather than spreading it across many units. This trade-off is the central decision every apartment owner needs to understand.
The Most Common NNN Tenant Types
NNN properties are organized by retail sector. Here are the categories our exchange clients most commonly invest in:
Quick Service Restaurants. McDonald's, Chick-fil-A, Starbucks (drive-thru), Taco Bell, Raising Cane's. Drive-thru QSRs are among the most sought-after NNN investments because of their high sales volumes and corporate backing. Chick-fil-A is unique: the company owns the real estate and the franchise, so the corporate guarantee is absolute. Cap rates: 4.5% to 5.5% for investment-grade, 5.5% to 6.5% for franchisee-operated.
Pharmacy and Medical. Walgreens, CVS, DaVita Dialysis, Fresenius Kidney Care. These tenants serve essential healthcare needs and operate regardless of economic conditions. Walgreens and CVS leases are typically 20 to 25 years with multiple renewal options. DaVita and Fresenius are recession-proof because dialysis treatment is medically necessary and government-funded. Cap rates: 5.0% to 6.5%.
Dollar Stores. Dollar General, Dollar Tree, Family Dollar. Dollar General is one of the most popular NNN investments in America. They build 1,000+ new stores per year, sign 15-year corporate-guaranteed leases, and operate in rural and suburban markets where land costs are low. Cap rates: 5.75% to 7.0% depending on lease term remaining.
Auto Service. O'Reilly Auto Parts, AutoZone, Caliber Collision, Jiffy Lube, Valvoline, Take 5 Oil Change. Auto service is internet-resistant (you cannot change your oil online) and benefits from an aging vehicle fleet in the U.S. These tenants typically sign 15 to 20 year leases with strong corporate credit. Cap rates: 5.5% to 6.5%.
Convenience and Gas. 7-Eleven, Circle K, Wawa, QuikTrip, Buc-ee's. Convenience stores are recession-resistant and benefit from high foot traffic. Be aware of environmental considerations: gas station sites require Phase I environmental assessments and may have underground storage tank liability. Cap rates: 5.0% to 6.5%.
Essential Retail. Grocery-anchored centers (Aldi, Trader Joe's), home improvement (Tractor Supply, Home Depot), general merchandise (Walmart Neighborhood Market). These tenants sell necessities that consumers purchase regardless of economic conditions. Cap rates: 5.0% to 6.0% for investment-grade.
Medical Office. Single-tenant medical and dental offices, urgent care facilities, veterinary clinics. Healthcare real estate is one of the fastest-growing NNN segments. Doctors and dentists tend to sign long leases because relocating a medical practice is extremely disruptive to their patient base. Cap rates: 6.0% to 7.5%.
Bank Branches. Chase, Bank of America, Wells Fargo. Bank branches offer investment-grade credit and long lease terms, but the sector faces headwinds from digital banking trends. Evaluate the specific location's foot traffic and population density before investing. Cap rates: 4.5% to 5.5%.
Investment-Grade vs. Franchisee Credit
This is the single most important concept apartment owners need to understand when evaluating NNN properties. Not all NNN tenants are created equal.
Investment-Grade Credit. A tenant is considered investment-grade when it carries a BBB- or higher credit rating from S&P or Baa3 or higher from Moody's. Examples: Walgreens (BBB), Dollar General (BBB), McDonald's corporate (BBB+), Starbucks (BBB+), Home Depot (A), Walmart (AA). When an investment-grade tenant signs your lease, the rent is guaranteed by the full financial strength of a Fortune 500 company. If your local store closes, the corporation still pays rent through the end of the lease term.
Franchisee Credit. Many well-known brands operate through franchise models. A Subway, Burger King, or Popeyes location is often operated by a local franchisee who owns 3 to 50 locations. The lease is guaranteed by that franchisee's company, not by the national brand. This means you need to evaluate the franchisee's financial strength: how many units they operate, their net worth, revenue trends, and operating history. A strong multi-unit franchisee can be an excellent tenant. A single-unit franchisee with limited financial backing is a higher risk.
Why it matters for pricing. Investment-grade tenants trade at lower cap rates (tighter pricing) because the income is more certain. A Walgreens with 20 years remaining might trade at 5.25%. A local franchisee-operated Burger King with 10 years remaining might trade at 6.75%. The 150 basis point spread reflects the credit risk difference.
Why it matters for financing. Lenders offer better terms for investment-grade tenants: higher LTV, lower interest rates, non-recourse options. Franchisee-backed deals may require recourse guarantees and lower leverage.
Why it matters for resale. When you eventually sell, investment-grade NNN properties have a deeper buyer pool and trade more quickly. Franchisee-backed properties take longer to sell and are more sensitive to remaining lease term.
NNN Cap Rates by Tenant Credit and Lease Term
Cap rates for NNN properties are driven by three factors: tenant credit quality, remaining lease term, and location. Here is how they typically break down:
| Tenant Credit | 15+ Years Remaining | 10-15 Years Remaining | 5-10 Years Remaining | Under 5 Years |
|---|---|---|---|---|
| Investment-Grade (BBB+/above) | 4.75% to 5.50% | 5.25% to 6.00% | 5.75% to 6.50% | 6.50% to 8.00% |
| Strong Franchisee (multi-unit) | 5.50% to 6.25% | 6.00% to 6.75% | 6.50% to 7.50% | 7.50% to 9.00% |
| Smaller/Local Tenants | 6.50% to 7.50% | 7.00% to 8.50% | 8.00% to 10.00% | Varies widely |
The lease term effect is massive. A Dollar General with 14 years left might trade at 5.75%. The same Dollar General with 4 years left might trade at 7.50%. That is because the buyer is pricing in re-tenanting risk: what happens when the lease expires? Will the tenant renew? At what rate? Will you need to find a new tenant? The shorter the remaining lease, the more the buyer discounts the price.
Geographic impact. Primary markets (coastal cities, major metros) trade at lower cap rates than secondary and tertiary markets (Midwest, rural South, small cities). Most apartment-to-NNN exchangers buy in secondary markets because that is where the yield advantage is greatest. You are not buying for location prestige. You are buying for income.
The 1031 Exchange Into NNN: Step by Step
Here is how the apartment-to-NNN exchange works in practice:
Step 1: Sell Your Apartment Building. List and sell with a qualified broker (ideally one who also understands NNN, so the exchange strategy informs pricing and timing from day one). At close of escrow, your proceeds go directly to a Qualified Intermediary (QI) — you never touch the money.
Step 2: The 45-Day Identification Period. You have exactly 45 calendar days from the close of your apartment sale to formally identify up to three replacement properties (the 3-Property Rule). This is the most critical deadline in the entire process. It cannot be extended for any reason.
Step 3: Find and Negotiate Your NNN Property. This is where having a broker with national NNN access matters. Marcus & Millichap's Net Lease platform has closed over $75 billion in single-tenant net lease transactions — more than any other firm in the country. We screen properties, evaluate tenant credit, analyze lease terms, and negotiate pricing on your behalf.
Step 4: Close Within 180 Days. You must close on your replacement property within 180 calendar days of selling your apartment building. NNN closings typically take 30 to 60 days, so timing is manageable if you start your search early.
Step 5: Boot Avoidance. To fully defer taxes, you must reinvest all proceeds (match or exceed both your equity and your debt). If your apartment building had a $1.5 million loan, you need at least $1.5 million in debt on the replacement side. This can come from a new mortgage on the NNN property, splitting into multiple properties, or using a Delaware Statutory Trust (DST) to absorb excess equity. See our DST Guide for details on this strategy.
Pro tip: Start your NNN search before you close your apartment sale. You cannot sign a purchase agreement on the replacement property until after your apartment closes, but you can identify targets, tour properties, and have letters of intent ready. The 45-day clock moves fast.
Financing NNN Properties
Financing a NNN property is fundamentally different from financing an apartment building:
Loan-to-Value (LTV). NNN loans typically range from 50% to 65% LTV, compared to 65% to 75% for apartments. Lenders are more conservative because your income depends on a single tenant. Investment-grade tenants with long leases get the best terms.
Interest Rates. Rates are closely tied to the lease term remaining. Lenders want the loan term to be shorter than the remaining lease term, so a property with 15 years left will get a better rate than one with 7 years left. Rates for investment-grade NNN typically run 50 to 100 basis points above comparable apartment rates.
Non-Recourse Options. Strong investment-grade tenants with 10+ years remaining often qualify for non-recourse loans (the lender's only collateral is the property, not your personal assets). This is attractive for exchange buyers who want to limit personal liability.
All-Cash Purchases. Many of our exchange clients buy NNN properties all-cash. If your apartment building had a low loan balance or was owned free and clear, you may not need financing at all. All-cash purchases simplify the exchange timeline and eliminate interest rate risk. The trade-off is lower leverage (less total real estate per dollar of equity).
Debt Matching for 1031. Remember: to fully defer taxes, you must match or exceed your relinquished property's debt. If your apartment had a $2 million mortgage and you buy a NNN property all-cash, you have $2 million in "boot" that is taxable. Options: (1) get a new loan on the NNN property for at least $2 million, (2) buy multiple properties to spread the debt requirement, or (3) use a DST with built-in non-recourse debt to absorb the difference.
Rent Escalations and Long-Term Returns
One of the biggest advantages of NNN investing is contractual rent growth. Unlike apartments, where rent increases are subject to market conditions, vacancy, and rent control limits, NNN leases have rent increases written into the lease before you buy.
The three common escalation structures:
Flat Annual Increases (most common). Rent increases by a fixed percentage each year, typically 1.5% to 2.0%. A lease starting at $180,000/year with 1.5% annual bumps reaches $227,000/year by year 15. This is the most predictable and easiest to underwrite.
Periodic Bumps. Rent increases by a fixed percentage at set intervals, such as 10% every 5 years. This is common with Dollar General and similar tenants. A lease starting at $180,000/year jumps to $198,000 at year 5, $217,800 at year 10, and $239,580 at year 15.
CPI-Linked Escalations. Rent adjusts annually based on the Consumer Price Index, sometimes with a floor (minimum 1%) and a cap (maximum 3%). This provides inflation protection but less predictability than flat increases.
The compounding math. Consider a $3 million NNN property purchased at a 6.0% cap rate with 1.5% annual escalations:
| Year | Annual Rent (NOI) | Yield on Cost |
|---|---|---|
| Year 1 | $180,000 | 6.00% |
| Year 5 | $191,045 | 6.37% |
| Year 10 | $205,785 | 6.86% |
| Year 15 | $221,672 | 7.39% |
| Year 20 | $238,771 | 7.96% |
By year 20, your yield on cost has grown from 6.00% to 7.96% without doing anything. Compare this to an LA RSO building where annual increases are capped at 3% to 4% but your expenses (property tax, insurance, water, repairs) are growing at 5% to 8% per year, steadily compressing your actual return.
The Risks of NNN Investing: An Honest Assessment
NNN properties are not risk-free. Here are the real risks every apartment owner should understand before exchanging:
Tenant Concentration Risk. This is the biggest difference from apartments. With a 20-unit building, one vacancy costs you 5% of income. With a single-tenant NNN property, one vacancy costs you 100% of income. If your tenant goes bankrupt, stops paying rent, or does not renew, you have a vacant commercial building with no income. Mitigation: buy investment-grade tenants with long lease terms and strong balance sheets.
Dark Store Risk. Some tenants (especially pharmacy chains) have clauses that allow them to cease operations at your location while continuing to pay rent through the lease term. You are getting paid, but you have an empty building. When the lease expires, you may have difficulty re-tenanting a building that was specifically designed for one use. This is more common with Walgreens and CVS locations in areas with declining foot traffic.
Lease Expiration Risk. What happens at year 15 when the lease expires? The tenant may renew — but at a lower rent if the market has shifted. They may leave entirely. You now own a single-purpose retail building that needs a new tenant. Re-tenanting costs (broker fees, build-out allowances, vacancy period) can be significant. This is why remaining lease term is so important to cap rate pricing.
Limited Value-Add Upside. With apartments, you can renovate units, add amenities, improve management, and raise rents. With NNN, your income is contractual. You cannot raise rent beyond what the lease specifies. Your upside is limited to the contractual escalations and potential cap rate compression at resale. If you are an active investor who wants to create value, NNN may feel too passive.
Interest Rate Sensitivity. NNN properties are essentially fixed-income instruments. When interest rates rise, cap rates expand and property values fall. A property you bought at a 5.50% cap rate may only sell at a 6.50% cap rate in a higher-rate environment, reducing your equity. This matters less if you hold long-term, but it is a real risk if you need to sell during a rising-rate environment.
Single-Use Buildings. Many NNN properties are built specifically for one tenant (a specific restaurant layout, a pharmacy with a drive-thru, an auto service bay configuration). If the tenant leaves, converting the building for a different use can be expensive or impossible depending on zoning and layout.
Location Obsolescence. Retail locations can decline over time as demographics shift, new competition opens, or traffic patterns change. A location that was ideal for a Dollar General in 2025 may be less desirable by 2040. Evaluate the long-term fundamentals of the location, not just the current tenant.
NNN Due Diligence: What to Verify Before You Buy
Apartment owners are used to evaluating rent rolls, expense ratios, and building condition. NNN due diligence is different. Here is what to focus on:
The Lease (Most Important Document). Read every page. Key items: base rent and escalation schedule, lease term and renewal options, tenant responsibilities (absolute NNN vs. landlord retains roof/structure), assignment and subletting rights, co-tenancy clauses (in multi-tenant centers), exclusive use provisions, termination or kick-out clauses, and guarantor identity (corporate vs. franchisee).
Tenant Financials. For investment-grade tenants, check the current S&P/Moody's rating and recent earnings reports. For franchisees, request the last 3 years of financial statements, number of units operated, and store-level sales (if available). A franchisee's unit-level economics determine whether they will renew or walk away at lease expiration.
Environmental Assessment. Phase I Environmental Site Assessment is standard for all commercial properties and essential for gas stations, auto service, dry cleaners, and any site with potential contamination. Environmental liability follows the property, not the tenant.
Roof and Structure Reports. Even on absolute NNN leases, get an independent assessment. You want to know what major capital expenditures may be needed after lease expiration if the tenant does not renew.
Remaining Lease Term vs. Your Hold Period. If you plan to hold for 10 years, buying a property with 7 years of lease remaining means you will face re-tenanting risk during your hold. Match your investment horizon to the lease term.
Location Fundamentals. Population growth trends, median household income, traffic counts, proximity to highways and other retail, local employment base. A strong location can be re-tenanted. A weak location cannot.
Comparable Sales. What have similar NNN properties with this tenant traded for recently? Cap rate comps help you determine whether you are paying fair value. Marcus & Millichap tracks every single-tenant net lease transaction nationally — we can benchmark any deal.
Real-World Case Studies
Here are actual exchange outcomes from LAAA Team clients (details adjusted for confidentiality):
Case Study 1: 10 Units in Manhattan Beach to Caliber Collision in Texas. Partnership dissolution. Partners had managed the building for 25 years and wanted out of management. Exchanged $2.5 million in equity into a 15-year corporate-backed Caliber Collision lease. Monthly income went from $2,010 (after expenses and management) to $8,063 in pure NNN income. That is a 301% increase in cash flow with zero landlord responsibilities. New depreciation schedule restarted their tax clock.
Case Study 2: 18 Units in Van Nuys to 4 Dollar General Locations in Arkansas. Owner was fed up with LA rent control changes and the constant management burden of 18 units. Exchanged into four brand-new Dollar General stores, each with 15-year corporate-guaranteed leases. Monthly income went from $6,354 to $13,161 — a 107% increase. Instead of managing 18 tenants across one building, they now collect four corporate rent checks and do nothing.
Case Study 3: 8 Units in North Hollywood to O'Reilly Auto Parts in Tennessee. Owner was approaching retirement and wanted simplicity. Sold an RSO building with deferred maintenance issues for $1.9 million and exchanged into a single O'Reilly Auto Parts with 12 years remaining on a corporate NNN lease. Monthly income went from $4,200 (net of all apartment expenses) to $7,125 in pure NNN rent. A 70% increase with the building's chronic plumbing and electrical issues becoming someone else's problem.
Case Study 4: 32 Units in Koreatown to 3 NNN Properties Across 3 States. Investor with $5.2 million in equity wanted geographic diversification and passive income. Exchanged into three properties: a DaVita Dialysis in Arizona (12 years, 6.25% cap), a Tractor Supply in Georgia (15 years, 6.0% cap), and a Dollar Tree in Ohio (10 years, 6.5% cap). Combined monthly income: $26,500 versus $17,800 from the Koreatown apartment building. A 49% increase spread across three recession-resistant tenants in three different states.
NNN vs. DSTs vs. Out-of-State Apartments
LA apartment owners doing a 1031 exchange typically consider three replacement options. Here is how they compare from the NNN investor's perspective:
| NNN Properties | DSTs | Out-of-State Apartments | |
|---|---|---|---|
| Ownership | Direct (you own the building) | Fractional (trust interest) | Direct (you own the building) |
| Control | Full control over hold/sell decisions | None (sponsor decides) | Full control |
| Management | None (tenant handles everything) | None (sponsor handles everything) | Active (hire property manager) |
| Minimum Investment | $1M to $5M+ typical | $100,000 | $500K to $2M+ typical |
| Financing | Must qualify personally (50-65% LTV) | Pre-packaged, non-recourse | Must qualify personally (65-75% LTV) |
| Closing Speed | 30 to 60 days | 3 to 5 business days | 30 to 60 days |
| Typical Returns | 5.5% to 7.0% cap rates | 5.0% to 8.5% projected | 6.0% to 8.0% cap rates |
| Liquidity | Liquid (sell anytime) | Illiquid (5-7 year hold) | Liquid (sell anytime) |
| Diversification | Single tenant, single location | Multiple properties and states | Multiple units, single market |
| Value-Add Potential | Limited (contractual income) | None (passive) | High (renovate and raise rents) |
| Best For | Passive income with ownership control | Fully passive, small amounts, backup IDs | Active investors wanting growth |
Many of our clients use a combination: NNN as the primary replacement and a DST to absorb remaining exchange proceeds or as a backup identification under the 3-Property Rule. For a deep dive into DSTs, see our DST Guide. For a detailed head-to-head comparison, see our NNN vs. DST Decision Guide.
California Tax Considerations
The tax burden on selling an LA apartment building is substantial, which is exactly why 1031 exchanges are so popular. Here is what you are deferring:
| Tax | Rate | Notes |
|---|---|---|
| Federal Capital Gains | 20% | On gain above basis (long-term) |
| Net Investment Income Tax (NIIT) | 3.8% | On investment income above $250K (married) |
| California State Tax | Up to 13.3% | No preferential capital gains rate |
| Depreciation Recapture | 25% federal | On accumulated depreciation (Section 1250) |
| Measure ULA (City of LA) | 4% or 5.5% | 4% on $5.3M-$10.6M; 5.5% above $10.6M |
Combined federal and state capital gains taxes can reach 30% to 37%+ of your gain. On a building you bought for $500,000 that sells for $3,000,000 with $300,000 in accumulated depreciation, you could owe $800,000 or more in taxes. A 1031 exchange into NNN defers all of it.
Additional tax benefit: when you exchange into a new NNN property, you start a new depreciation schedule on the replacement property. Commercial buildings are depreciated over 39 years (vs. 27.5 years for residential). While the annual depreciation deduction is smaller, it provides a new tax shield that offsets your NNN rental income.
For the complete California tax breakdown including DST-specific considerations, see our DST Guide.
Marcus & Millichap's Net Lease Platform
One of the advantages of working with the LAAA Team is access to Marcus & Millichap's national Net Lease platform — the largest in the industry:
- $75+ billion in net lease transactions closed
- 14,000+ single-tenant net lease deals completed
- 1,500+ agents in 80+ offices nationwide sourcing deals
- Dedicated Net Lease Division with tenant credit analysis, lease evaluation, and pricing guidance
- National buyer database matching your exchange equity to available NNN inventory
- Marcus & Millichap Capital Corporation (MMCC) for NNN-specific financing
This means when your apartment building sells and the 45-day clock starts, we are not scrambling to find NNN properties on LoopNet. We have real-time access to the largest pipeline of single-tenant net lease properties in the country, many of which are not publicly marketed.
Frequently Asked Questions About NNN Properties
What is a triple net lease?
A triple net (NNN) lease is a commercial lease where the tenant pays all operating expenses: property taxes, insurance, and maintenance. The landlord collects rent and has no expense obligations. This makes NNN properties the most passive form of direct real estate ownership.
What is the average NNN cap rate?
NNN cap rates vary widely by tenant credit, lease term, and location. Investment-grade tenants with 15+ years remaining typically trade at 4.75% to 5.50%. Strong franchisee tenants trade at 5.50% to 6.75%. Shorter lease terms and weaker credit push cap rates higher. The national average for all single-tenant net lease transactions is approximately 6.0% to 6.5%.
Can I 1031 exchange an apartment building into a NNN property?
Yes. The IRS defines "like-kind" broadly for real estate: any real property held for investment qualifies, regardless of property type. Exchanging from an LA apartment building to a NNN-leased retail, medical, or auto service property is one of the most common 1031 exchange strategies. Approximately 60% of our exchange clients make this move.
What is the minimum investment for NNN?
Typical NNN properties range from $1 million to $10 million, with the sweet spot for exchange buyers being $1.5 million to $5 million. Properties under $1 million exist but are less common and tend to have weaker tenant credit. If your exchange equity is smaller, you can combine a NNN purchase with a DST investment to absorb the full amount.
How long are typical NNN leases?
New construction NNN leases are typically 15 to 20 years with multiple 5-year renewal options. The most desirable investments have 10 to 15+ years of remaining primary term. As lease term decreases below 7 to 8 years, cap rates expand significantly because buyers are pricing in re-tenanting risk.
What happens when the NNN lease expires?
Three possible outcomes: (1) the tenant exercises a renewal option, typically at a predetermined rent increase (most common with strong locations), (2) the tenant vacates and you re-tenant the building (potentially at a higher or lower rent), or (3) you sell the property before lease expiration to avoid re-tenanting risk. Buying properties with strong locations and long remaining lease terms minimizes this risk.
What is the difference between NNN and absolute NNN?
In a standard NNN lease, the tenant pays all three nets but the landlord may retain some responsibility for major structural or roof repairs. In an absolute NNN (or bond) lease, the tenant is responsible for everything including roof and structure. Absolute NNN is the most passive form of real estate ownership and is most common with investment-grade tenants.
Are NNN properties a good investment in 2026?
NNN properties remain attractive for LA apartment owners seeking passive income, particularly given the cap rate spread between LA apartments (3.5-4.5%) and secondary market NNN (5.5-7.0%). Interest rate stabilization has brought more buyer activity and tighter pricing on premium properties. The best opportunities are in investment-grade tenants with 10+ years remaining in markets with population growth.
What is investment-grade credit in NNN?
Investment-grade means the tenant has a credit rating of BBB- or higher (S&P) or Baa3 or higher (Moody's). This indicates a low probability of default. Examples: Walgreens (BBB), Dollar General (BBB), Starbucks (BBB+), Home Depot (A). Investment-grade tenants command lower cap rates because their rent is backed by a strong balance sheet.
How do NNN returns compare to apartment buildings?
On a cap rate basis, NNN properties in secondary markets (5.5-7.0%) significantly outperform LA apartment buildings (3.5-4.5%). On a total return basis (including appreciation), apartments historically offer more value-add upside through renovation and rent growth. NNN properties offer predictable, contractual returns with minimal effort. Our NNN exchange clients average a 55% increase in net cash flow.
Can I finance a NNN property in a 1031 exchange?
Yes. NNN financing typically offers 50% to 65% LTV with terms tied to the remaining lease term. Investment-grade tenants qualify for the best rates and non-recourse options. Many exchange buyers purchase all-cash to simplify the timeline, then refinance later if they want to pull out equity. Your 1031 intermediary and lender need to coordinate closely to meet the 180-day deadline.
What are the risks of single-tenant NNN?
The primary risk is tenant concentration: if your one tenant defaults or does not renew, you lose 100% of income. Other risks include lease expiration uncertainty, single-use building limitations, interest rate sensitivity on resale values, and location obsolescence. These risks are mitigated by buying investment-grade tenants with long lease terms in strong locations. Some investors diversify by purchasing multiple NNN properties across different tenants and geographies.
Next Steps
If you are considering selling your LA apartment building and want to explore NNN properties as part of your 1031 exchange strategy, contact Glen Scher at (818) 212-2808 or email Glen.Scher@marcusmillichap.com. We will walk you through the entire process: pricing your building, marketing to buyers, managing the exchange timeline, and finding the right NNN replacement properties through Marcus & Millichap's national platform.
For an overview of all 1031 exchange strategies, visit our 1031 Exchange page. For the fully passive alternative to NNN, read our DST Guide. For a head-to-head comparison, see our NNN vs. DST Decision Guide.