Net lease properties are commercial real estate assets in which the tenant assumes responsibility for some or all property operating expenses — property taxes, insurance, and maintenance — in addition to paying base rent. The term "net" reflects the landlord's position: they receive rent "net" of some or all expenses, with more predictable income compared to gross-lease structures where the landlord bears operating costs.
Triple-net (NNN) leases are the purest form: the tenant pays base rent plus all property taxes, insurance, and maintenance costs. The landlord's role is limited to collecting rent and managing the property's capital structure. NNN leases are particularly common for standalone retail (fast food restaurants, convenience stores, pharmacies), healthcare facilities, and industrial properties with single long-term tenants. NNN properties with long lease terms from investment-grade tenants are among the most bond-like real estate assets available.
Net lease lending is primarily driven by the credit quality of the tenant and the remaining term of the lease. If a property has a 15-year NNN lease with a Fortune 500 tenant, the credit analysis resembles corporate credit analysis as much as real estate analysis — the lender's security is the tenant's obligation to pay rent for the next 15 years. LTV constraints are typically 65–75%, and DSCR requirements based on current NOI are the primary sizing metrics.
Lease term risk is critical to net lease underwriting. Properties with short remaining lease terms face re-leasing risk — if the tenant doesn't renew, the property's income drops to zero and the LTV can spike dramatically. Lenders prefer properties with long lease terms relative to the loan term, ensuring that the tenant's obligation extends well beyond the loan's maturity date.
Tenant concentration is a significant risk in net lease portfolios. A property secured by a single tenant's lease has 100% tenant concentration — if the tenant vacates or defaults, the property generates no income. Portfolio net lease lenders diversify across tenants and property types, but single-asset net lease lenders must be particularly attentive to the tenant's credit quality and lease structure.