By Chase Burke and Andy Jonsson, Co-Founders of ROME Real Estate Group
Between us, we’ve worked on hundreds of NNN deals in the Sacramento market — corporate-guaranteed retail, owner-user property, 1031 trades, multi-tenant centers, and everything in between. The most common question we get from new investors is the simplest one: “What does NNN actually mean, and what should I be paying for it?” This guide is everything we’d tell you over coffee if you walked into our office and asked.
Part 1: NNN Leases, Explained Like a Sacramento Broker Would
What NNN actually means
NNN stands for “triple net” — meaning the tenant pays the three “nets” on top of base rent: property taxes, building insurance, and common area maintenance. In a true NNN structure, the landlord collects base rent and passes through the operating costs. The tenant ends up responsible for almost everything that touches the property economically.
The advantage to the landlord (and to investors who buy NNN-leased property) is predictable income. The advantage to the tenant is that base rent is usually lower than a comparable gross lease. The disadvantage to the tenant is that taxes, insurance, and maintenance costs can drift upward over time, which is why CAM caps and NNN audits matter — more on that later.
How NNN compares to other lease structures
| Lease Type | Tenant Pays | Common In |
|---|---|---|
| Gross / Full-Service | Single rent number; landlord pays operating costs | Office |
| Modified Gross | Rent + some operating expenses | Office, mixed-use |
| Single Net (N) | Rent + property taxes | Rare |
| Double Net (NN) | Rent + taxes + insurance | Some office, some retail |
| Triple Net (NNN) | Rent + taxes + insurance + CAM | Most retail and industrial in Sacramento |
| Absolute NNN | Everything, including roof and structural | Single-tenant credit retail (drugstore, dollar store) |
A note on “NNN” versus “Absolute NNN”
This trips people up constantly. A standard NNN lease usually leaves roof and structural responsibility with the landlord. An absolute NNN lease — sometimes called “true triple net” or “bondable” — pushes everything to the tenant, including roof and structural. When you’re underwriting an NNN investment property, read the actual lease language. Marketing flyers describe almost everything as “NNN” when it really matters whether the tenant or the landlord is on the hook for the roof.
Part 2: The Sacramento NNN Investment Market
Why Sacramento attracts NNN buyers
The honest answer: yield. Cap rates in Sacramento for credit-tenant NNN retail typically sit one hundred to two hundred basis points above comparable Bay Area assets. Bay Area sellers exchanging into Sacramento can buy real income with their proceeds instead of paying record prices for trophy product they can barely cash flow. Out-of-state buyers get California exposure without coastal pricing.
Add to that the metro’s growth: Bay Area out-migration, state government employment, an expanding tech sector, and steady population growth across Folsom, Roseville, and Elk Grove. Demand for retail, industrial, and select office is real, and that’s translating into rent growth and tightening vacancy.
Cap rate benchmarks (2026)
These are what we’re seeing close on the ground in Sacramento as of 2026. Cap rates move with credit, lease term, and submarket — these are general ranges, not a substitute for live underwriting.
| Asset Profile | Cap Rate Range | Typical Lease Term |
|---|---|---|
| Investment-grade corporate NNN (e.g., national drugstore, dollar store) | 5.5% – 6.5% | 10–15 years remaining |
| Quick-service restaurant NNN (corporate guarantee) | 5.75% – 7% | 10–20 years |
| Multi-tenant retail center | 7% – 8.5% | Mixed |
| Single-tenant industrial, mid-credit tenant | 5.5% – 7.5% | 5–10 years |
| Owner-user / vacant | N/A — priced on $/SF | N/A |
Submarket breakdown — where the NNN deals are happening
| Submarket | What’s Trading | Investor Profile |
|---|---|---|
| Midtown Sacramento | Smaller infill retail, mixed-use, restaurants | Local owners, value-add |
| Downtown Sacramento | Office, ground-floor retail | Institutional, government-adjacent |
| Roseville | Big-box NNN, regional office, restaurants | 1031 buyers, family offices |
| Folsom | Medical, fitness, specialty retail NNN | Local and regional investors |
| Elk Grove | New-build retail pads, fast-casual NNN | Bay Area 1031 capital |
| Natomas | Family-driven retail, drive-thru NNN | Yield-focused investors |
| Rancho Cordova / Hwy 50 | Industrial, flex, single-tenant NNN | Out-of-state, owner-users |
Due diligence — what we actually check on every NNN deal
The marketing flyer will tell you cap rate, base rent, and lease term. Here’s what you have to verify before you sign:
- Read the actual lease. Not the broker’s summary. The lease tells you who pays for roof and structural, what happens at renewal, whether the tenant has termination rights, and whether the rent steps are fixed or CPI-tied.
- Tenant credit. Investment-grade corporate guarantee is not the same as a franchisee with a personal guarantee. The cap rate spread between them is real, and so is the risk.
- Lease term remaining. Five years remaining at 6% cap is not the same investment as fifteen years remaining at 6%. Reversion risk is real.
- Rent versus market. If the tenant is paying above-market rent, plan for a renegotiation at renewal. If they’re paying below market, you have upside.
- CAM history. Pull three years of CAM reconciliations. Look for outsized increases, capital expense pass-throughs, and landlord margin baked in.
- Property condition. Roof age, HVAC age, parking lot condition. On absolute NNN that’s the tenant’s problem; on standard NNN it’s yours.
- Estoppel and SNDA. Confirm with the tenant in writing that the lease terms are accurate and there are no defaults.
- Title and zoning. Standard but easy to skip on a busy 1031 timeline.
Part 3: NNN and the 1031 Exchange
NNN-leased property is the dominant asset class for 1031 buyers in California for one reason: it’s passive. After a Bay Area landlord sells an apartment building or a piece of raw land, they often don’t want another active management headache. A drugstore on a fifteen-year corporate NNN looks like an annuity by comparison.
The challenge is timing. The IRS gives you forty-five days from sale to identify replacement property and one hundred eighty days to close. NNN-leased product moves fast in Sacramento — good deals trade within days of listing — and out-of-state 1031 buyers competing for the same product can lose deals to local buyers who tour faster.
The play we recommend: start sourcing replacement property the moment your relinquished property goes under contract. Don’t wait until day one of your forty-five-day window. We’ve helped enough 1031 buyers thread the needle to know that pre-identification work is what makes the difference between a smooth exchange and a panicked one. (Our Investment Services page covers our 1031 process in more detail.)
Part 4: Common NNN Mistakes Sacramento Investors Make
- Trusting the marketing flyer. The flyer will tell you it’s “absolute NNN, zero landlord responsibility.” The lease will sometimes disagree. Always read the lease.
- Buying short lease term at long-term cap rates. A property with three years remaining and no extension options should not trade at the same cap as a property with twelve years remaining. If it does, you’re overpaying for reversion risk.
- Ignoring the secondary tenants in a multi-tenant deal. Anchor credit drives the cap rate, but anchor leaves do happen. Look at the inline tenants, the co-tenancy clauses, and what the center looks like without the anchor.
- Not understanding rent escalations. A 1.5% annual escalation in a low-inflation environment is fine. In a 4% inflation environment, you’re losing real income year over year. Watch the structure.
- Skipping the local broker. Out-of-state buyers who self-tour and self-underwrite Sacramento NNN miss things that locals catch — shifting traffic patterns, planned road work, competing centers under construction. Local market intelligence is the cheapest insurance you can buy.
- Not negotiating the LOI hard. Once you’re in escrow on a NNN deal, your leverage drops. Front-load the negotiation: price, due diligence period, contingencies, financing, closing costs.
Part 5: Tips for First-Time NNN Investors
- Start with a corporate-guaranteed tenant. Even at a tighter cap rate, a credit-tenant deal is a much smoother first investment than a multi-tenant value-add.
- Don’t chase yield. A 7.5% cap deal that has a tenant credit issue or a short lease term is not “better” than a 6% cap deal with corporate credit and twelve years remaining.
- Understand your hold period. If you plan to hold for ten years, lease term remaining is critical. If you plan to flip in three, it matters less — but resale will be priced on the remaining term.
- Get to know one submarket well. Trying to underwrite Roseville, Folsom, and Elk Grove simultaneously when you’re new is a recipe for missing local nuances. Pick one and learn it.
- Have your team in place before you start looking. Lender, qualified intermediary if 1031, attorney, CPA, broker. Day one of your search is too late to start interviewing.
Frequently Asked Questions
What does NNN mean in commercial real estate?
NNN, or triple net, means the tenant pays base rent plus three operating costs: property taxes, building insurance, and common area maintenance (CAM). It’s the most common lease structure for retail and industrial commercial real estate in Sacramento.
What’s a good cap rate for NNN property in Sacramento?
It depends on tenant credit and lease term. As of 2026, investment-grade corporate NNN retail typically trades at 5.5% to 6.5%, multi-tenant retail at 7% to 8.5%, and industrial NNN at 5.5% to 7.5%. The “good” cap rate is the one that compensates for the credit and lease term risk you’re taking.
Are NNN leases good for 1031 exchanges?
Yes — they’re the most common 1031 replacement asset for California buyers. They’re passive, predictable, and there’s deep inventory in the Sacramento metro. The challenge is timing the IRS deadlines, which is why early identification work matters.
What’s the difference between NNN and absolute NNN?
Standard NNN typically leaves roof and structural responsibility with the landlord. Absolute NNN (sometimes called “bondable”) pushes everything to the tenant, including roof and structural. The lease language is what matters — not the marketing label.
How long are typical NNN leases in Sacramento?
Investment-grade corporate NNN deals usually run 10 to 20 years with options every five years. Drugstore and corporate QSR leases often run on the longer end of that range. Regional and local tenants typically sign shorter terms.
Who handles repairs in a triple net lease?
In a true NNN lease, the tenant handles day-to-day maintenance, taxes, and insurance, while the landlord typically retains responsibility for roof and structural items. In an absolute NNN lease, the tenant covers everything, including roof and structural. Always read the specific lease — the marketing label doesn’t always match the legal language.
What rent escalations are typical in NNN leases?
Most Sacramento NNN leases have annual or every-five-year rent increases. Common structures: fixed annual increases of 1.5% to 3%, CPI-tied with a floor and ceiling, or 10% bumps every five years. The structure matters as much as the number — fixed escalations are predictable; CPI escalations protect against inflation.
Final Word
NNN is a clean, scalable way to own commercial real estate, but the cleanness can be deceiving. The lease is the asset. Read it, model it, and make sure the cap rate compensates for the risk. If you’re a first-time NNN buyer in Sacramento, or a 1031 buyer with a tight clock, talk to a local broker who actually closes these deals. We do — call us at (916) 932-2199 or visit our Investment Services page.
Chase Burke and Andy Jonsson are the co-founders of ROME Real Estate Group. Chase has closed over 650 commercial transactions totaling more than 1.7 million square feet. Andy brings a CPA background with deep expertise in deal underwriting and lease economics. Both are Sacramento natives.