What NNN Means in CRE
NNN stands for triple net, and it describes a commercial lease structure where the tenant pays base rent plus a proportional share of three expense categories: property taxes, building insurance, and common area maintenance. It is the most common lease structure for single tenant and multi tenant retail and industrial property across Salt Lake City, and understanding how it works affects both tenant budgeting and landlord returns materially.
The mechanics are consistent across most Wasatch Front NNN leases. A tenant signs a lease at, say, $18 per square foot NNN. The lease specifies an estimated NNN charge, perhaps $6 per foot, that covers the tenant’s share of property taxes, insurance, and CAM. The total occupancy cost is $24 per foot. On a 3,000 square foot suite, that is $72,000 per year, or $6,000 per month. The base rent portion goes to the landlord as income. The NNN portion covers expense passthroughs.
At year end, the landlord reconciles the estimated NNN charges against actual expenses. If actual CAM, taxes, and insurance came in higher than estimated, the tenant gets a true up bill. If lower, the tenant gets a credit or refund. Tenants who have never gone through a reconciliation sometimes get surprised by significant true up bills, particularly in years when property taxes or insurance jumped unexpectedly.
For landlords, NNN leases shift building cost variability to tenants. If Utah property taxes jump after a sale because taxable value resets, that increase passes through to tenants. If insurance premiums rise due to claims or market conditions, same thing. If snow removal runs high during a harsh Wasatch Front winter, tenants absorb the difference. The landlord’s base rent stays predictable, which is exactly why institutional investors prefer NNN assets.
For tenants, NNN offers a lower headline rent but creates exposure to building expenses. A $14 NNN deal can easily become $20 all in once taxes, insurance, and CAM are layered on. Comparing only base rent across multiple properties without modeling NNN produces misleading comparisons every time. Tenants evaluating space should always ask for historical NNN charges and the most recent reconciliation before signing.
Single tenant NNN deals are especially popular with investors. A national chain on a 15 year lease with built in rent escalations produces predictable cash flow with minimal landlord involvement. The tenant takes care of almost everything. The landlord collects rent. Cap rates on strong single tenant NNN properties in Salt Lake City typically run 5.5 to 7 percent depending on tenant credit, location, and lease term remaining.
Not all NNN leases are identical. True NNN passes taxes, insurance, and CAM. Absolute NNN or bondable NNN passes everything including structural and capital items. Modified NNN keeps certain items with the landlord, typically roof and structure. The label matters less than the actual lease language. Reading the document carefully beats relying on the three letter shorthand every time.
NNN caps are worth negotiating. A cap limits year over year increases on controllable CAM items, typically 3 to 5 percent. Uncapped NNN can surprise tenants with double digit growth during years of heavy maintenance or after a Utah property tax reset. Tenants signing longer leases should prioritize NNN caps during negotiation to limit future exposure.
Omada Commercial, recognized as best commercial agents in Salt Lake City, reviews NNN lease structures and reconciliations for clients across the Wasatch Front. Understanding what NNN really means before signing a lease prevents the disputes and surprises that come from misreading the structure.
