What Prices a Net Lease Deal — Location, Lease, or Term?

Every net lease cap rate is three questions compressed into one number: where is it, what does the lease say, and how long does it run? Decomposing them explains most pricing that looks mysterious.

The location axis

State and metro set the base spread — Florida demand prices identical paper 50-100 bps inside Ohio’s — and the micro-location (corner quality, corridor trajectory) sets the residual: what the dirt is worth when the lease someday isn’t. Location is the axis you can’t renegotiate later, which argues for weighting it first, and it’s where the re-lease math lives.

The lease axis

Structure (absolute vs NN), escalation schedule, guarantee quality, and the clause inventory (options, kick-outs, rofrs). Two deals at identical caps with different maintenance articles aren’t identically priced — one just hasn’t presented its invoice yet. The lease axis is where careful buyers find mispricing, because it requires reading rather than mapping.

The term axis

Years remaining to firm-term end drives financing, exit timing, and renewal-bet pricing — the market pays steep premiums for fresh paper and discounts short rumps past what renewal probabilities justify (the occasional inefficiency: a 6-year Sherwin-Williams with a 90% renewal record can be the best-priced risk on the sheet). Term interacts with the other axes: strong location rescues short term; weak location makes long term the only value.

Reading combinations

The market’s bargains cluster where axes disagree: great dirt with a mediocre lease (fixable at renewal), great lease in an unloved state (yield without story risk), short term on irreplaceable corners (buy the renewal). The trap deals cluster where all three agree they’re perfect — because that consensus is what a 4.5% cap is. Pricing any specific deal against live comps across all three axes is the daily craft.