Why lease term is the whole game.

The term sets everything else

Lease term is how long the building pays you before you have to do something about it: sell, renew, or find a new tenant. Every other number on an offering memorandum bends to that one. A cap rate is only as good as the years of rent standing behind it. A loan is only safe if the lease outlasts it. Read the term first, then read the rest.

Term comes in two parts. The primary term is the years the tenant is contractually on the hook. The option periods are the years the tenant may extend, at its choice, not yours. A fifteen-year primary with four five-year options is a fifteen-year promise and a thirty-five-year possibility. Those are different things, and an honest read keeps them separate.

What WALT actually measures

When a deal has more than one tenant, the single term becomes a blend. WALT, the weighted average lease term, is that blend done by income rather than by count. You weight each tenant remaining years by the share of rent it pays, then add them up. A tenant paying most of the rent moves the number far more than a tenant paying a little.

The simple average says eight years. The weighted number says almost ten, because the tenant carrying most of the income has most of the runway. Always ask which number you are looking at. A broker quoting the higher one is not lying, but you should know why it is higher.

Two ways a long term can still mislead

Flat rent is the first. A twenty-five-year lease with no increases locks you into today income for a quarter century. It feels safe, and the credit behind it often is, but inflation spends every year of it. By year eight you may be collecting rent the market would price well above. Long does not mean growing.

Fair-market-value options are the second. An option that resets to market sounds generous until the tenant declines to take it. Then the years you counted on were never yours to count. Options at the tenant discretion protect the tenant, not you. Read what the renewal does to the rent, and read who gets to decide.

Two ways a short term can still be fine

A strong tenant near the end of its term is often a tenant about to renew. A store that has traded in the same corner for twenty years, remodeled twice, and sits on the busiest intersection in town is telling you something the lease does not. Paper says four years. Behavior says longer.

Location can outrank the lease entirely. Real estate you could re-tenant in ninety days carries a short term differently than real estate in a thinning market with one possible occupant. The term is the floor. The dirt underneath it is the question.

The lease term is the floor. The dirt underneath it is the real question.

The bar for single-tenant net lease

For single-tenant net-lease purchases, the institutional standard is a long primary backed by real options. Ten or more years of primary term, four to six fixed options, and increases written on a schedule rather than left to a future negotiation. That is the most defensible shape a single-tenant deal takes, under the assumptions most buyers underwrite to. Anything shorter can still be a good deal. It just has to earn it somewhere else.