Absolute Net Investment Sold by The Cauble Group
Absolute Net and Triple Net investments are attractive to investors for a reason.
These offerings often have long-term tenants in place with higher credit, providing some certainty as to the income they will produce.
And with limited to no responsibility for the property owner, absolute and NNN investments are “mailbox money” - intended to be passive income investments.
When The Cauble Group found an ATT-leased investment offering in Chattanooga, we immediately sent it to our Deal of the Week list (sign up here) and had it under contract within the week.
About the Investment Offering
This single-tenant industrial building located at 1503 Dodds Avenue in Chattanooga, Tennessee was listed for sale in the Fall of 2019.
The two-story building totals 6,955 square feet and is situated on a 2.88-acre parcel with points of ingress/egress on Dodds Avenue and East Main Street. Following construction in 1987, the building was immediately leased to Bellsouth Telecommunications, LLC for use as a service operations facility.
The tenant has occupied this location for over 32 years and has demonstrated long-term commitment to the location by exercising multiple renewal options. The tenant recently exercised its renewal option and has just under 5 years remaining on an absolute NNN lease, making the offering a fully passive investment. Bellsouth was acquired by AT&T in 2006 and has since operated as a wholly owned subsidiary of the parent corporation. AT&T is a leading provider of data services, with more than 273,000 employees worldwide and over $183 billion reported revenue in 2018.
The property is located along a main industrial corridor and is positioned excellently along Route 64. There is a strong presence of both retail and industrial tenants in immediate proximity including Beacon Roofing Center, Chattanooga Hardwood Center, Quality Battery & Auto Repair and Gas-N- Go. Additionally, the property benefits from strong area demographics, with nearly 140,000 residents and an average household income of over $50,600 within a 5-mile radius.
Underwriting the Investment
With each Deal of the Week newsletter, The Cauble Group fully underwrites each investment for our clients. We’re very intentional about the deals we put out to the list, as they have to be deals we’re willing to invest in, ourselves.
After discussing the investment offering with one of our banking relationships, we determined that we could get loans terms with 4% interest, 10-yr term, 20-yr amortization on a 20% down payment. Of course, these numbers could vary based on the balance sheet of the investors and could be pushed to a 25-yr amortization.
At asking price, the investment offering was well over a 10% cash on cash return - major green flag for us. Once we began discussing the offering with the listing agent, we determined we could likely get the price down depending on the other terms of the contract.
Our team was able to negotiate the price down to $1,875,000, which took the offering from an 8% cap rate to 8.5% cap rate - and a 12.87% cash on cash return, as you see above.
One of the most attractive factors of this investment to our team was the current rent rates being brought in by the tenant. Annual rents are right in line with market today, so if the tenant elects not to exercise their renewal option in 2024, we shouldn’t have an issue releasing the space, considering it’s located just outside of downtown Chattanooga on a major thoroughfare.
Buying Commercial Investments Sight-Unseen
In an absolute net investment scenario, the tenant is 100% responsible for any and all expenses on the property - including taxes, insurance, common area maintenance, and even roof / structural issues.
When investing in an absolute net lease, you’ll definitely want to have the site inspected for future liabilities, but our client on this project never even stepped foot on the property.
We were able to review the lease and perform all of our due diligence remotely, making the deal as streamlined as possible for our client.
About The Author:
Tyler Cauble, Founder & President of The Cauble Group, is a commercial real estate broker and investor based in East Nashville. He’s the best selling author of Open for Business: The Insider’s Guide to Leasing Commercial Real Estate and has focused his career on serving commercial real estate investors as a board member for the Real Estate Investors of Nashville. Learn more at www.TylerCauble.com
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