The Double Net (NN) Lease — Pricing the Landlord's Roof

Double net: tenant pays taxes and insurance; the landlord keeps maintenance responsibility — in practice usually roof, structure, and sometimes parking. It’s the structure hiding inside many deals marketed as “NNN,” and the difference is priced in basis points and shingles. The full lease-structure ladder has the context.

Where NN paper lives

Auto parts is the classic habitat — plenty of AutoZone and O’Reilly leases retain landlord shell duties — along with older dollar-store vintages, some Starbucks paper, and legacy deals from every sector’s earlier eras. Nothing wrong with any of it, provided the buyer prices what they’re keeping.

Pricing the retained obligations

The market discount for NN versus true NNN runs roughly 25-50 basis points, but the real math is capital-event arithmetic: a roof membrane on a 7,000 SF box costs $60-100K and cycles every 18-25 years; parking mill-and-overlay runs $4-8 per square foot on its own cycle. Amortize the expected events across your hold, subtract from NOI, and that’s your true cap rate — frequently turning an advertised 6.4% into an economic 6.1%. Roof age and warranty status become first-order diligence: a documented 3-year-old TPO with a transferable warranty nearly closes the NN/NNN gap; a 22-year-old original is the gap.

Buying NN well

The playbook: inspect the retained systems like you own them (you will), demand maintenance records, price reserves into your bid explicitly, and check the lease’s edges — some NN forms make the tenant responsible for repairs while the landlord owns replacement, a distinction worth exactly one roof. Bought with the reserve priced in, NN paper is often the better yield; bought off the flyer’s “NNN” label, it’s a deferred invoice.