NNN Quality Framework (Three Pillars)
Mike Priolo's framework for evaluating an NNN asset rests on three pillars — tenant, real estate, and lease — and the principle that long-term value is driven by more than the cap rate. A high cap rate often signals risk compensation rather than a bargain. The strongest assets line up creditworthy tenants, durable real estate fundamentals, and favorable lease terms simultaneously.
Key Points¶
- Tenant: creditworthy, well-capitalized, necessity-based industry, strong unit sales.
- Real estate: prime location, high traffic, strong demographics, value independent of the tenant.
- Lease: long remaining term, built-in escalations, strong guaranty (see Credit Tier Framework).
- Cap rate alone is misleading; tenant quality, building age, demographics, vacancy, and replacement demand all matter.