Single-Tenant Triple Net Lease: Credit, Cap Rate Decomposition, and the 2026 Net Lease Bid

Key Takeaways

What Single-Tenant Triple Net Lease Actually Means

A single-tenant triple net lease - abbreviated STNL or NNN in industry shorthand - is a commercial real estate contract in which one tenant occupies the entirety of a property and bears the three categories of operating expense that the "net" qualifiers count: real estate taxes, property insurance, and CAM / maintenance. The landlord receives the contract rent net of those obligations, which is what makes the structure attractive: in the cleanest forms the landlord's only role is to hold title, collect rent, and deliver the reversion at lease expiry.

The structure occupies a specific institutional niche. STNL retail (drug stores, dollar stores, QSR pads, auto-service, big-box single-tenants) is the category this article focuses on, and it draws institutional and 1031-private capital buyers. The publicly traded net-lease REITs, including Realty Income (O), Agree Realty (ADC), NETSTREIT (NTST), EPR Properties (EPR), Four Corners Property Trust (FCPT), Broadstone Net Lease (BNL), and Essential Properties Realty Trust (EPRT), compete with that private capital for the same paper.

The institutional underwriting question is never "is this a triple net lease?" - the form is well understood. The question is what cap rate to assign, and that question collapses to credit. A 1.0-acre site with a drive-thru building leased to McDonald's USA, LLC trades at a fundamentally different cap rate than the same physical asset leased to a regional franchisee operating LLC, even if both leases are nominally "triple net" with 20-year primary terms and 10% bumps every 5 years. The cap-rate decomposition framework below isolates what the buyer is paying for at each layer of the stack.

The 2026 Single-Tenant Net Lease Bid

Boulder Group's Q1 2026 Net Lease Research Report - a quarterly print for STNL pricing - sets the overall single-tenant asking cap rate at 6.80%, down one basis point QoQ from 6.81% in Q4 2025. The figures in this article are median asking cap rates as reported by InvestmentGrade.com, not closed-sale cap rates. The headline is "almost boring" stability, as InvestmentGrade.com's Q1 2026 commentary notes - but the subsector and brand-level data tell a much more interesting story. The headline conceals a market that is filtered, not frozen.

Subsector breakdown from the Q1 2026 print:

Boulder Group Q1 2026 Net Lease Research Report. The retail subsector is the tightest bid; office carries the widest spread. Spreads are measured against the 10Y UST at 4.30% (March 31, 2026 close, FRED DGS10).

The retail bid is materially tighter than office or industrial because the institutional pool - net- lease REITs plus 1031 capital plus family offices - concentrates almost entirely on retail single- tenant paper. The buyer mix is what compresses the spread; the asset characteristics (long-dated lease, fixed escalations, IG or near-IG credit) are largely fungible across sectors at the property-form level.

The brand-level stack is where the institutional reading lives. Alongside the 6.55% retail blended number sits a 370 bps range of brand-specific prints:

Three observations from the brand stack. First, the McDonald's GL at 4.40% prices roughly flat to the 10-Year Treasury at 4.30%, a spread of about +10 bps. A near-zero spread to the risk-free rate means the market is pricing the rent stream as a near-risk-free coupon and valuing what a Treasury doesn't offer: the fee-simple reversion at end of term and embedded rent growth (fixed bumps or CPI escalations). Chick-fil-A ground leases at 4.50% sit about 20 bps over the same benchmark.

Second, the Walgreens print at 8.10% is the stack's signature credit-event case. Walgreens Boots Alliance reported that S&P and Moody's cut its long-term ratings below investment grade in fiscal 2024, and an affiliate of Sycamore Partners took the company private on August 28, 2025, after which it has no current agency rating on file. Its October 2024 announcement of 1,200 to 1,300 store closures over three years adds a store-level overhang. The Q1 2026 print was up 10 bps from Q4 2025, and the lease-term curve is steep: Walgreens at 6.75% with 15 to 19 years remaining versus 9.25% with under five years remaining. This is what cap-rate decomposition is for: the lease form and the building are the same, but the credit and reversion components have moved the price.

Third, the CVS print at 6.80% equals the 6.80% overall blended rate - effectively the reference print for the investment-grade drug retail tier. CVS is rated S&P BBB; the 130 bps gap to Walgreens at 8.10% with the same physical product (free-standing drug-store with drive-thru) is the institutional pricing of an investment-grade obligor versus a privately held, unrated one that was below investment grade before its buyout, plus the store-closure overhang. CVS shows the same lease-term pattern at tighter levels: 6.35% with 15 to 19 years remaining versus 8.45% with under five years remaining.

Cap Rate Decomposition: The 5-Component Build

The institutional cap rate is not a market quote - it's a build. Broker marketing materials define NNN cap rates by quoting the latest Boulder Group print and stopping there. The institutional buyer decomposes the print into five components, sizes each component to the specific lease in hand, and uses the build as the test of whether the market quote is the right price for the specific paper. The risk-free rate and BBB option-adjusted spread below come from FRED; the illiquidity, reversion and sponsor ranges are illustrative practitioner assumptions, not published statistics. The five components:

1. Risk-free rate. The 10-Year U.S. Treasury yield is the institutional anchor - at 4.30% at the March 31, 2026 close per the Federal Reserve H.15 release (FRED series DGS10; daily closes in Q1 2026 ranged from 3.97% to 4.44%). Some practitioners use the 5-year or 7-year UST instead, depending on the lease's primary term remaining; the duration-matched UST is the theoretically correct benchmark but the 10-year is the institutional convention because it is the most liquid benchmark.

2. Credit spread. The compensation for tenant default risk on the rent obligation. For an investment-grade tenant, this is approximately the corporate-bond OAS for the same rating: the ICE BofA BBB US Corporate Index OAS ranged from 93 to 116 bps across Q1 2026 daily closes and stood at 113 bps on March 31, 2026 (FRED series BAMLC0A4CBBB), so a BBB-rated tenant earns a credit spread of roughly 95–115 bps. The real-estate and operating-asset risk of the rent obligation, which an unsecured corporate bond does not carry, sits in the illiquidity premium (component 3) rather than being layered onto the credit spread. Comparing the built cap rate with the parent's corporate bond yield is the institutional bond-proxy framing behind the "STNL as quasi-fixed-income substitute" thesis.

For sub-IG and unrated tenants the credit spread widens with each notch down the ladder. A BB+ tenant such as Yum! Brands (the S&P-rated parent behind Taco Bell) or Restaurant Brands International (parent of Popeyes and Burger King) carries a wider spread than a BBB tenant, and a B-rated or unrated franchisee operating LLC wider still; the illustrative ladder below shows total cap-rate spreads to the 10-year by rating band. The credit spread is the largest swing factor in the build; together with the ground-lease structure, it explains most of the 370 bps wedge between McDonald's GL at 4.40% and Walgreens at 8.10%.

3. Illiquidity premium. CRE is not a corporate bond - you can't sell a $5M STNL property at 11:30am the way you can sell a McDonald's Corp 2034 bond. The illiquidity premium compensates the buyer for this. For institutional-grade STNL with brand-tenant credit, this typically runs 50–100 bps. For specialized or non-fungible single-tenant assets (a build-to-suit for a niche industrial user, an auto-service prototype that doesn't re-tenant easily), the illiquidity premium can be 150–250 bps. The 1031-eligible, easily fungible drug-store box on a corner sits at the low end of the range; the one-off industrial sale-leaseback to a sub-IG operator sits at the high end.

4. Reversion / WALT uncertainty. The compensation for terminal-value risk at lease expiry - whether the building re-tenants, what the going market rent will be, what re-leasing capex looks like. For a 20+ year WALT corporate ground lease where improvements revert to the fee owner, the reversion is heavily discounted in PV terms and the premium is modest (25–50 bps). For a 5–10 year remaining primary term with significant re-tenanting risk, the premium expands to 75–125 bps. The Q1 2026 lease-term curves support the direction: Walgreens prices at 6.75% with 15 to 19 years remaining versus 9.25% with under five years, and CVS at 6.35% versus 8.45%, so remaining term is priced as an independent instrument within the same tenant.

5. Sponsor / asset-specific premium. The catch-all for lease-specific or asset-specific risk factors that don't fit the prior four. Examples: a secondary-market location (+20–50 bps), a sub-IG corporate parent on what is nominally a "national tenant" lease (+30–75 bps), a non-standard escalation structure that adds modeling friction (+10–25 bps), a complex REA on a former pad-site carve-out (+15–40 bps). On clean, standard-form institutional paper this component approaches zero; on idiosyncratic single-asset deals it can dominate.

The worked example in the figure above sums to 6.30% - 4.30% + 1.10% + 0.50% + 0.40% + 0.00% - which sits 5 bps below Boulder Group's CVS Q1 2026 print of 6.35% for leases with 15 to 19 years remaining. That is inside the 25 bps tolerance, so the print is fair for IG drug retail with the assumed lease profile. The term-matched comparison matters: against CVS's 6.80% all-term print the same build would sit 50 bps below, a gap that comes from comparing a 15-to-19-year lease with an all-term median rather than from a mispriced asset. The institutional practitioner's interrogation begins when the build differs from the term-matched market quote by 25 bps or more: that's where lease-specific features, supply / demand imbalances, or credit-event repricing are driving the gap.

Tenant Credit: From S&P BBB to Franchisee Guarantor

Tenant credit is the largest component of the STNL cap-rate decomposition and the part where institutional discipline pays off most. The institutional ladder spans four tiers, each with its own cap-rate band and its own structural risk profile. The bands are illustrative practitioner ranges built from the table further below; spreads are the band less the 4.30% 10-Year UST. Tenant ratings are as shown in the InvestmentGrade.com ratings database in October 2026.

Tier 1 - High investment grade (S&P AA / A). The narrowest cap-rate band in the universe. Walmart (AA), Costco (AA), Home Depot (A), Target (A), 7-Eleven (A−, an S&P issuer rating on 7-Eleven, Inc.). These tenants represent the institutional core: long-dated leases, fixed escalations, IG-rated parent guarantor on the rent obligation where the lease names one, fungible physical assets in primary and secondary markets. Cap-rate band Q1 2026: 5.00–6.25%, a spread of 70–195 bps over the 10-Year UST. The 1031 demand pool is drawn to this tier because the credit clears the IG threshold that investment-grade-only mandates require.

Tier 2 - Standard investment grade (S&P BBB+ / BBB / BBB−). The widest band in the universe by brand range. McDonald's (BBB+) ground leases print at 4.40%, below the tier's 5.75% floor because of ground-lease structure, so they are shown as a separate row in the table below. CVS (BBB) at 6.80% and Dollar General (BBB) at 7.15% sit inside the band, and the lease-term curves show how far the same tenant can move: CVS at 6.35% with 15 to 19 years remaining versus 8.45% with under five. The band's width is a structural feature: lease term, location and brand-specific stories move individual leases without changing the rating. The institutional reading is that the rating is a starting point, not a conclusion - the buyer underwrites the specific tenant's free cash flow, store-level performance, and forward credit trajectory.

Tier 3 - Near-IG / speculative (S&P BB+ / BB / B). Yum! Brands (BB+, the rated parent behind Taco Bell), Wendy's (B+), Family Dollar (S&P B on Family Dollar Stores LLC, sold by Dollar Tree in July 2025). Walgreens prices in this tier as well: it was below investment grade at S&P and Moody's before the August 2025 buyout and has no agency rating on file today. Chipotle has no identified agency rating and reports no outstanding debt, so it is underwritten from its financial statements rather than placed on the ratings ladder. Cap-rate band 7.50–11.00%, a spread of 320–670 bps over the 10-Year UST. The institutional buyer pool thins in this tier - investment-grade-only mandates drop out - and the remaining bid is concentrated in higher-yield private capital and REPE strategies underwriting to operator-level credit. Repricing risk on bankruptcy or guidance-cut events is concentrated; the portfolio-level exposure deserves explicit underwriting.

Tier 4 - Unrated franchisee operating LLC. The franchisee-guaranteed paper where the rent obligor is the operating LLC ("Mid-Atlantic McDonald's Holdings, LLC", "Sunshine Wendy's Operators, LLC") rather than the franchisor parent. Boulder Group's Q1 2026 data prints corporate-guaranteed QSR at 5.82% and franchisee-guaranteed QSR at 6.80% - a 98 bps headline spread that narrows to 72–90 bps within the same remaining-term bucket (20+ years: 5.00% corporate versus 5.90% franchisee; under 10 years: 6.83% versus 7.55%). The franchisee paper is not "the same building with a cheaper guarantor." It's a distinct security: the rent runs through an operating LLC whose creditworthiness depends on store- level cash flow, the franchisor is not necessarily the guarantor (a parent's rating applies to a lease only if the parent signs or guarantees it), and defaults cluster regionally (correlated within a single franchisee operator across all that operator's stores).

The practitioner rule on the credit ladder: in the illustrative table below, adjacent rating rows sit roughly 50–140 bps apart at the band midpoints (AA to A about 50, A to BBB about 75, BBB to BBB− about 110, BBB− to BB about 75, BB to B+ about 140), with structural step-changes at the IG threshold (many institutional buyer mandates cut at investment grade) and at the franchisee boundary (corporate guarantee to operating LLC is a structural change, not just a credit step). The Family Dollar case study illustrates the structural-change premium: Dollar Tree sold Family Dollar on July 5, 2025, and its filings, as summarized by InvestmentGrade.com, show a guarantee that survives only for certain stores, capped at $20 million in the second year and $10 million in the third. S&P rates Family Dollar Stores LLC B, and Family Dollar prints at 8.65% in Q1 2026 against Dollar General at 7.15%, a 150 bps gap - not because the underlying real estate differs but because the rent obligor is now largely the operating company alone.

Indicative cap-rate bands by S&P notch, Q1 2026 institutional STNL retail. The rating-notch bands are illustrative practitioner assumptions, not published statistics; the franchisee QSR row (5.90% at 20+ years remaining to 7.55% at under 10 years) and the ground-lease row are Boulder Group Q1 2026 prints as reported by InvestmentGrade.com. Spreads are the band less the 4.30% 10Y UST. Bands overlap because cap rates are also driven by WALT, escalations, asset specificity, and the supply / demand dynamics of the specific brand cohort. Read the tenant's actual rating and recent bond-market signals, not just the broad rating bucket.

Lease Structure: NN vs NNN vs Absolute Net vs Ground Lease

"Triple net" is a contract term with a specific definition - the tenant pays real estate taxes, property insurance, and CAM (common area maintenance) - not a synonym for "passive landlord." The institutional vocabulary has six forms, each shifting expense responsibility incrementally toward the tenant. Getting this vocabulary right matters because the cap rate and the landlord workload differ materially across forms.

Lease-form responsibility matrix, using this article's convention that NNN leaves roof and structure with the landlord (some leases and practitioners label tenant-pays-roof forms NNN). The cap-rate impacts are illustrative assumptions for the same tenant credit, not published statistics; tighter cap rates as you move down the matrix reflect declining landlord operating exposure and cleaner cash flow. Absolute net and ground lease are the institutional gold standard because the landlord has effectively no operating responsibilities once the lease is executed.

Triple net (NNN) is the institutional benchmark form. The tenant pays the three categories of operating expense - taxes, insurance, CAM - on a pass-through basis, typically billed quarterly or annually with year-end reconciliation. The landlord retains responsibility for the roof and structural components ("the roof, walls, and foundation" is the standard institutional phrasing) and some capital expenditures.

Double net (NN) shifts taxes and insurance to the tenant but keeps CAM, roof, structure, and capex with the landlord. The 50–100 bps cap-rate haircut vs NNN is an illustrative figure that reflects the landlord's incremental CAM exposure (parking lot, lighting, snow removal, landscaping on a single-tenant retail box).

Absolute net (sometimes called "bondable") goes further than NNN - the tenant takes on roof, structure, and all capital expenditures, leaving the landlord with no operating responsibilities whatsoever. This is the "set-and-forget" institutional form. In this article's illustrative convention, cap rates run 25–50 bps inside comparable NNN for the same tenant credit. Lease form varies by tenant and by lease: the Family Dollar listings tracked by InvestmentGrade.com alone state NN, NN+, NNN, absolute NNN and net, so confirm the form in the lease rather than assuming it from the brand.

Ground lease (GL) is the cleanest institutional form. The tenant constructs and owns the building; the landlord owns the land and recovers it at lease expiry (with improvements reverting per the lease terms, typically to the fee owner). In this article's illustrative convention, cap rates run 75–200 bps inside comparable NNN because the landlord has zero physical exposure to the building - if the operator defaults the landlord recovers the dirt and re-tenants the site. McDonald's corporate ground leases at 4.40% in Q1 2026 are the tightest ground-lease print in the stack. See our companion article onpad sites, outparcels, and QSR ground-lease creditfor the full ground-lease mechanics.

The vocabulary trap: practitioners frequently use "triple net" loosely to mean "tenant pays everything" when the actual lease is absolute net, ground lease, or somewhere in between. Read the operating expense section of the lease before relying on the cap-rate benchmark. The diligence question is not "is this triple net?" but "exactly which expenses pass through to the tenant, and what's the landlord's residual operating exposure?"

1031 and the Net-Lease Bid

A major institutional dynamic in STNL pricing is the 1031 exchange demand pool. Section 1031 of the Internal Revenue Code allows owners of real property to defer capital gains tax by reinvesting sale proceeds into like-kind real property within strict timelines: 45 days to identify the replacement, and receipt of the replacement by the earlier of 180 days or the due date (with extensions) of the tax return for the year of the sale (26 U.S.C. §1031(a)(3)). Since the 2017 tax act the exchange is limited to real property. The combination of the deadline pressure and the like-kind requirement makes single-tenant net lease a frequent 1031 replacement product, and InvestmentGrade.com's Q1 2026 commentary describes 1031 buyers as a persistent source of demand for assets that close cleanly.

The 1031 buyer needs three things from a replacement property: ability to identify and close within the statutory windows, simple operating profile (the 1031 buyer is typically not building out a property- management team), and sufficient transaction-friction-tolerance to absorb broker fees and acquisition costs inside the tax benefit. STNL retail suits all three. Identifying a McDonald's GL or a CVS NNN at the brokered cap rate is a one-call exercise; due diligence on a single-tenant credit lease is materially faster than on a multi-tenant retail center; and the deferred tax, a function of the original property's gain rather than its sale proceeds, can absorb a meaningful cap-rate premium paid for the replacement.

The institutional implication: the 1031 buyer's reservation price can sit inside the institutional REIT's reservation price because the alternative is a taxable sale. Take an illustrative case: a seller nets $5.0M of cash, all of it gain (zero remaining basis, no debt), and assumes 30% of the gain ($1.5M) is unrecaptured section 1250 gain taxed at a maximum 25% under IRC §1(h) plus the 3.8% net investment income tax (28.8%), with the other $3.5M taxed at 23.8% (20% plus 3.8%). Federal tax is $3.5M × 23.8% = $833,000 plus $1.5M × 28.8% = $432,000, or $1,265,000. At an assumed 5% state rate, state tax is a further $250,000, for $1,515,000 in total, about 30% of the gain. The taxable seller keeps about $3.49M ($3.735M after federal tax alone); the 1031 buyer puts the full $5.0M to work. At a 6.80% cap rate, $5.0M buys about $340,000 of annual rent, and $3.485M would need a 9.76% cap rate to produce the same $340,000. The deferred tax is not forgiven (the replacement property carries the lower basis), but the math explains why a 1031 buyer can rationally accept a tighter cap rate to preserve the deferral.

This dynamic supports prices when institutional deal flow slows - cap-rate widening in the broader CRE market, REIT mandate shifts, or financing dislocations - because the 1031 buyer's alternative is the taxable event, not waiting for cap rates to widen. The McDonald's GL at 4.40% sits only about 10 bps over the 10-Year Treasury at 4.30%, the tightest print in the stack, and a 1031 buyer who must close inside a deadline is one kind of buyer that supports pricing at that level. A pure financial-yield framework that compares the cap rate with a Treasury yield alone leaves out the reversion, the rent escalations and the tax deferral this buyer is weighing.

Underwriting implication: when modeling forward cap-rate sensitivities, distinguish institutional-only scenarios from 1031-supported scenarios. In a heavy 1031 supply year, an illustrative assumption is that STNL cap rates compress 25–50 bps below what pure-institutional fundamentals would suggest. In a thin 1031 year, the institutional REITs become the dominant marginal buyer and cap rates revert to the credit-spread-driven build.

How to Model It

The institutional STNL underwriting workflow has five computational pieces that belong in distinct tabs of any pro forma. They're not difficult individually; the discipline is in keeping each piece honest and re-cross-checking against the broader cap-rate decomposition build.

Tab 1 - Lease abstract and obligor identification. Capture the exact rent obligor (legal entity name from the lease cover page), the parent guarantor if any, the parent's current S&P and Moody's ratings, the lease form (NN / NNN / absolute net / GL - from the operating expense section, not the marketing materials), the primary term remaining, the extension option count and length, and the full escalation schedule. The most common modeling error: importing a "McDonald's" rent line without confirming that the obligor is McDonald's USA, LLC vs a regional franchisee operating LLC. The cap- rate decomposition is materially different.

Tab 2 - Cap rate decomposition build. Build the 5-component cap-rate stack as a formula. Risk-free rate (linked to live UST source - Federal Reserve H.15 daily release). Credit spread (lookup table indexed by S&P rating + lease term remaining bucket, populated from corporate bond OAS data). Illiquidity premium (single input, defaulted to 50 bps for fungible IG retail). Reversion / WALT premium (formula based on years remaining vs a 20-year benchmark). Sponsor / asset-specific premium (manual input with annotated justification). The built cap rate is the test against the market quote.

Tab 3 - Market quote validation. Pull the most recent Boulder Group quarterly print for the brand or subsector, matched to the lease's remaining-term bucket, and compare to the built cap rate. A tolerance of 25 bps in either direction suggests the market quote is fair for the credit-and-term profile; a gap of 25 bps or more demands an explanation rooted in lease-specific features (term remaining, escalation deviation, asset specificity), recent credit events, or supply-and-demand dynamics (heavy 1031 supply year, recent brand-specific downgrade).

Tab 4 - Cash flow schedule and yield-to-maturity. Project annual contract rent with contractual escalations through primary term and expected option periods. Compute the in-place cap rate (Year 1 rent / purchase price) and the yield to expiry (IRR of the contracted cash flows assuming reversion at lease end). The cap rate is the institutional headline; the yield to expiry incorporates the escalation schedule and is the institutionally correct comparison against duration-matched corporate bonds. The institutional bond-proxy framing depends on this calculation.

Tab 5 - Sensitivity and credit-event scenarios. Build sensitivities for (a) cap-rate compression / decompression on resale, (b) credit downgrade scenarios that re-price the asset (the Family Dollar 8.65% versus Dollar General 7.15% gap, the Walgreens 8.10% versus CVS 6.80% gap), and (c) lease-renewal vs re-tenanting at expiry. The credit-event sensitivity is where institutional discipline pays off - a downside case that runs the cap rate out to the wide end of the stack, as the Walgreens and Family Dollar prints show is possible for drug-store and dollar-store paper, tells the buyer what the asset is worth if the credit story turns. The buyer who treats the cap rate as a static market quote does not run that case.

Build It in Apers

Common Mistakes in Single-Tenant Net Lease Underwriting

• Treating the cap rate as a market quote rather than a build. The institutional practitioner decomposes the cap rate into its five components and tests the market quote against the build. The broker treats the cap rate as exogenous - "Boulder Group says 6.80%, so 6.80% it is." The discipline matters most at the credit-event boundaries: the 130 bps gap between Walgreens at 8.10% and CVS at 6.80% for the same physical product is invisible to a "market quote" approach and obvious to a credit-spread-driven decomposition.

• Confusing investment-grade tenant with investment-grade lease. An "investment-grade tenant" means the parent entity (Walmart Inc., Costco Wholesale Corporation, CVS Health Corporation) is rated S&P BBB− or above by at least one of the major agencies. An "investment-grade lease" requires that parent to be the obligor on the rent obligation, not a subsidiary or franchisee operating LLC. Many "national tenant" leases are signed by sub-IG or unrated subsidiaries with no parent guarantee. Read the rent obligor entity and the guarantee structure before applying the IG cap rate.

• Using the wrong duration on the risk-free rate. The 10-Year UST is the institutional convention but the duration-matched benchmark is the theoretically correct anchor. A 5-year remaining primary term lease is better benchmarked against the 5-Year UST (about 35–45 bps inside the 10-year in Q1 2026; FRED DGS10 less DGS5 ranged from 34 to 47 bps across daily closes and was 38 bps on March 31). For long-dated ground leases with 40+ year contractual terms, the 30-Year UST is closer to right. Using the 10-Year on a short-paper lease overstates the risk-free anchor by roughly that 35–45 bps and understates the credit spread by the same amount.

• Treating absolute net and triple net as interchangeable. Absolute net adds roof, structure, and capex to the tenant's responsibilities; triple net keeps roof and structure with the landlord. The illustrative cap-rate differential is 25–50 bps for the same credit. On a $5M NNN property priced at a 6.80% cap rate (rent of about $340,000), a cap rate 25–50 bps tighter (6.55% to 6.30%) implies about $191K to $397K of additional value. Read the operating expense section of the lease - not the marketing summary - before benchmarking.

• Ignoring the 1031 supply dynamic in forward sensitivity. STNL cap-rate compression in a given quarter can be a 1031-supply phenomenon, not a fundamentals-driven institutional revaluation. Modeling a forward 25-bps compression as "the market shifting" when it's actually "heavy 1031 supply chasing limited STNL inventory" produces wrong exit assumptions. Distinguish institutional-only and 1031-supported scenarios in sensitivity tables.

• Underpricing the credit-event scenario. At constant rent, value moves inversely with the cap rate. An illustrative repricing from 6.50% to the Walgreens Q1 2026 print of 8.10% is a 19.8% loss of asset value (1 − 6.50 / 8.10), and from 6.25% it is 22.8%, with no change to the lease form or the physical building. The institutional discipline is to model 100-bps credit-spread downside scenarios explicitly, not as tail events but as base sensitivities. Dollar Tree's July 2025 sale of Family Dollar, which left only a capped, time-limited Dollar Tree guarantee on certain stores, and Walgreens' move to private ownership with no agency rating on file are both credit events that deserve explicit scenario tables.

• Failing to read the escalation schedule before benchmarking. A 0% / flat-rent lease with 15 years remaining is worth materially less than a 10%-every-5-years lease with the same WALT and same tenant. The institutional convention is to bench the cap rate against fixed-bump leases; flat- rent paper deserves a wider cap rate (an illustrative 20–30 bps) to compensate for the absence of inflation hedge. Some older NNN leases carry flat rent through long primary terms - identify those before applying the bumped-lease cap rate.

FAQ

Related Articles

• Pad Sites & Outparcels: Ground Lease Economics, QSR Credit, and the 2026 Cap Rate Stack - the ground-lease companion that walks the McDonald's GL 4.40% / Chick-fil-A 4.50% / corporate-vs-franchisee QSR spread mechanics.
• Retail Underwriting: Anchor Economics and Co-Tenancy Provisions - the multi-tenant retail framework that contextualizes single-tenant credit underwriting within anchored shopping center structure.
• Grocery-Anchored Retail: Below-Market Anchor Rent and Inline Economics - the grocery-anchored center underwriting where below-market anchor leases interact with inline cap-rate stacking.
• Dark Stores and Big-Box Vacancy: Retenanting Economics - the credit-event-driven scenario adjacent to STNL credit deterioration (Walgreens, Big Lots, Rite Aid).
• Cap Rate Calculator and Formula - the underlying valuation primitive (NOI ÷ value) driving every STNL pricing decision.

Sources

• Boulder Group, Net Lease Research Reports: quarterly STNL cap rate report; the Q1 2026 figures used here (6.80% overall, retail 6.55%, industrial 7.15%, office 7.90%; McDonald's GL 4.40%, Chick-fil-A 4.50%, corporate QSR 5.82%, franchisee QSR 6.80%, CVS 6.80%, Dollar General 7.15%, Walgreens 8.10%) are as reported by InvestmentGrade.com.
• InvestmentGrade.com, "Investment-Grade Net Lease Cap Rates Hold Near 6.80%": Q1 2026 cap rates by sector, brand and remaining lease term (Walgreens 6.75% at 15-19 years versus 9.25% under 5 years; CVS 6.35% versus 8.45%; corporate QSR 5.00% versus franchisee QSR 5.90% at 20+ years), Family Dollar 8.65%, and the "filtered, not frozen" commentary.
• InvestmentGrade.com, "NNN Cap Rates 2026": S&P and Moody's ratings for McDonald's, CVS, Dollar General, AutoZone, Walmart, 7-Eleven, Wendy's, Yum! Brands (Taco Bell) and Restaurant Brands International.
• InvestmentGrade.com, "Walgreens Credit Rating & NNN Cap Rate": below-investment-grade ratings in fiscal 2024, Sycamore Partners take-private on August 28, 2025, October 2024 store-closure plan, lease terms.
• InvestmentGrade.com, "Family Dollar Credit Rating & NNN Cap Rate": S&P B rating on Family Dollar Stores LLC, July 5, 2025 sale by Dollar Tree, capped Dollar Tree guarantee on certain stores, lease types in listings.
• InvestmentGrade.com, "Chipotle Credit Rating & NNN Cap Rate": no agency rating, no outstanding debt, lease terms and options.
• InvestmentGrade.com, 7-Eleven, Costco, Home Depot and Target tenant rating pages: S&P ratings of A-, AA, A and A.
• FRED, Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity (DGS10) and 5-Year (DGS5), Federal Reserve H.15 release: 10-Year 4.30% and 5-Year 3.92% at the March 31, 2026 close.
• FRED, ICE BofA BBB US Corporate Index Option-Adjusted Spread (BAMLC0A4CBBB): 93 to 116 bps across Q1 2026 daily closes, 113 bps on March 31, 2026.
• 26 U.S.C. §1031(a)(3), and Treas. Reg. §1.1031(k)-1: the 45-day identification and 180-day (or return due date) exchange periods for deferred like-kind exchanges of real property.
• 26 U.S.C. §1(h): maximum 25% rate on unrecaptured section 1250 gain; the 23.8% convention in the 1031 example is 20% plus the 3.8% net investment income tax.
• 26 U.S.C. §1014: basis of property acquired from a decedent.