Single Tenant Triple Net Lease: How DST Investors Get Diversification

What Is a Single Tenant Triple Net Lease?

STNL Defined

A single tenant triple net lease is a commercial lease where one tenant occupies the entire property and assumes responsibility for base rent plus all operating expenses: property taxes, building insurance, and common area maintenance. The three expense categories create the "triple net" designation (see our triple net lease fundamentals guide for a deeper overview). This structure minimizes landlord involvement because the tenant handles expenses directly, and the landlord receives base rent without deductions for fluctuating costs. For investors, this creates income predictability as long as the tenant continues paying.

STNL leases typically run 10 to 25 years, with rent escalations of 1-2% annually, CPI-linked increases, or periodic step-ups. Because tenants cover taxes, insurance, and maintenance, NOI closely tracks gross rent making these properties easier to underwrite than gross lease properties where expense projections introduce uncertainty.

Common Single Tenant NNN Property Types

Drugstores historically dominated STNL offerings. Walgreens and CVS signed 20-25 year corporate-guaranteed leases for strategically located corner sites, which many investors treated as near-bond-like income. Pharmacy sector challenges have repriced that view: Walgreens cap rates reached 8.00% in Q4 2025, up from the mid-6% range the prior year.

Dollar stores provide lower entry points. Dollar General and Dollar Tree properties typically trade at $1-2 million with 10-15 year leases; national asking cap rates for dollar store properties averaged 7.40% in Q4 2025, with Dollar General specifically at 7.10%.

Quick-service restaurants occupy high-traffic, often drive-through locations. Chick-fil-A ground leases traded at 4.50% cap rates in Q4 2025, among the tightest in the net lease market. While Starbucks properties traded at 6.50%. The spread between the two reflects differences in brand strength and operator stability.

Industrial distribution centers have become a growing STNL segment. Amazon, FedEx, and UPS sign long-term leases on purpose-built facilities; e-commerce tailwinds support demand, and industrial STNL cap rates averaged 7.20% in Q4 2025.

Medical properties like dialysis centers, urgent care facilities, medical office buildings round out the STNL landscape. DaVita dialysis centers feature specialized buildouts and captive patient bases that create tenant stickiness, and healthcare utilization holds up through economic downturns.

The Concentration Risk Problem with Single Tenant NNN

One Tenant, One Property, All the Risk

Tenant concentration risk is the risk that a property's financial performance collapses if its sole tenant defaults, goes bankrupt, or vacates. With STNL properties, all rental income depends on one occupant. When that tenant leaves, income drops to 100% vacancy overnight.

This is not theoretical. Rite Aid closed all remaining 1,275 locations by October 2025 after its second Chapter 11 filing. Walgreens announced 1,200 store closures through 2027, affecting eight REITs that reported Walgreens as a top tenant; Northmarq identified approximately $6 billion in CMBS exposure across 360+ loans tied to Walgreens properties. Sycamore's take-private completion in August 2025 signaled potential acceleration of closure decisions and lease renegotiations.

What Happens When That Tenant Leaves

Net operating income drops 100% during vacancy because there is no partial occupancy cushion. Property values decline immediately when tenant credit weakens or vacancy occurs, because buyers underwrite cap rates based on contracted rent and tenant quality. Lenders often require larger reserves or shorter amortization on STNL loans.

Dark periods, the time between a tenant's departure and a replacement tenant opening, can run 6 to 18 months depending on location and market demand. During that stretch, the property owner absorbs all carrying costs: debt service, property taxes, insurance, utilities, and maintenance, with no offsetting income. Even if you are debt-free, these costs can be significant.

Re-tenanting costs add further pressure. Broker commissions typically run 4-6% of total lease value; tenant improvement allowances range from $10 to $50+ per square foot; and new tenants often negotiate free rent periods. Replacement tenants also negotiate based on current market conditions, not the prior tenant's above-market lease, so rents can reset 10-30% lower than before. For investors who purchased the property at a cap rate priced on the original lease, this creates a compounding problem at disposition.

Multi-Tenant NNN: Built-In Diversification (But Higher Minimums)

Risk Spreading Through Multiple Tenants

Multi-tenant NNN properties spread revenue across several tenants, each typically representing 7-10% of total income. When one tenant vacates, others continue paying rent, providing an income cushion that single-tenant properties lack. Lease expirations naturally stagger across tenants, reducing simultaneous rollover risk and giving owners more time to adjust rents and improve tenant mix. The same can be said for a DST portfolio of NNN properties.

Multi-tenant structures feature shorter individual leases, typically 3-7 years, compared to the 10-25 year terms common in single-tenant properties. That creates more frequent opportunities to adjust to market conditions but requires more active management like tracking multiple tenant relationships, lease renewals, and co-tenancy clauses that can trigger rent reductions if anchor spaces go dark.

The Capital Barrier Problem

The capital barrier is the problem for most individual investors. Quality multi-tenant NNN properties typically require $3-10 million in investment capital. Equity requirements of $1-3 million per property restrict access or introduce concentration risk for many investors.

The Direct Buyer's Dilemma: Can't Afford Diversification

Quality Single Tenant NNN Requires $1M+

Investment-grade STNL properties with tenants like Amazon, FedEx, or CVS typically trade at $3-15 million with cap rates of 5-6.5%. Dollar store properties require $800,000-2 million for quality locations. Even with financing at 65-70% LTV, direct buyers face equity requirements of $300,000-1 million per property.

Building a Diversified Portfolio Requires $5M+

True diversification across five or more properties in different markets, tenants, and property types requires $5-15 million in total capital at $1-3 million per property. Most individual investors cannot concentrate that much capital in a single asset class while maintaining balanced portfolios in stocks, bonds, and other holdings.

The 1031 exchange timeline compounds this challenge. The 45-day identification and 180-day closing requirements make building a diversified portfolio through sequential direct purchases difficult. Identifying five suitable properties, completing due diligence on each, and closing within 180 days creates timeline pressure that often leads to compromised property selection.

How DSTs Solve Single Tenant Concentration Risk

Delaware Statutory Trusts allow multiple investors to own fractional interests in institutional-quality real estate. IRS Revenue Ruling 2004-86 confirmed that DST beneficial interests qualify as like-kind property for 1031 exchanges when the trust holds only real estate and prohibits active beneficiary management. DST structure eliminates the property hunt, provides immediate access to institutional assets, and requires no personal loan guarantees.

Fractional Ownership Across Multiple Properties

Minimum investments of $50,000-$100,000 per DST offering enable portfolio construction across multiple properties. An investor with $500,000 can build a diversified DST portfolio accessing five different properties with five different tenants in five markets; the same diversification through direct ownership would require $5 million+ in capital. DST restrictions including trustee control over management decisions ensure passive tax treatment but mean investors surrender property-level control.

Portfolio Diversification with Lower Minimums

Consider an investor with $500,000 in 1031 exchange proceeds. Through direct ownership, they might acquire one property with one tenant, creating complete income dependence on that tenant's credit and operational decisions. Through DSTs, the same investor can allocate across five offerings: a Walgreens property in Texas, an Amazon distribution center in Ohio, a Dollar General portfolio in the Southeast, a medical office building in Arizona, and a QSR portfolio in California.

That structure diversifies by tenant (pharmacy, e-commerce, discount retail, healthcare, food service), property type (retail, industrial, medical, QSR), geography, and DST sponsor. If Walgreens closes the Texas location, the other four properties continue generating income. Your distribution from that one DST may stop, but 80% of the portfolio remains unaffected.

Professional Tenant Vetting Included

DST sponsors conduct institutional-level due diligence including reviewing tenant financials, credit ratings from S&P or Moody's, lease guarantee structures, and industry competitive positioning. They manage ongoing tenant relationships and handle disposition at the end of the hold period. Individual investors typically lack both the access to tenant financial statements and the expertise to assess credit and lease risk at this level.

Evaluating Tenant Concentration in DST Offerings

Single-Property DSTs vs DST Portfolios

Not all DSTs structure concentration risk the same way. Single-property DSTs own one asset leased to one tenant. They are straightforward to evaluate, but if that tenant fails, your income stops. Portfolio DSTs hold multiple properties with different tenants, spreading risk within the offering itself. Spreading investments across 3-5 DST offerings from different sponsors distributes risk across multiple properties and tenants.

Questions to Ask About Tenant Risk

When evaluating any NNN DST offering, focus on four factors.

Direct NNN Ownership vs DST: Making the Right Choice

Direct ownership provides maximum control. You decide whether to accept renewal proposals, pursue alternative tenants, or sell when market conditions favor sellers. But that control requires $1-5 million per asset and $5-15 million for genuine diversification, plus ongoing time for lease administration, tenant correspondence, capital expenditure decisions, and eventual disposition management.

DST structure addresses the capital, diversification, and management constraints most STNL investors face. Minimums of $50,000-$100,000 per offering allow diversified STNL exposure with $200,000-500,000 in total capital. Trustees handle operations; you receive distributions and K-1s without landlord duties. DST offerings also simplify 1031 exchanges by providing pre-packaged replacement properties with due diligence already completed, and DST debt is non-recourse to investors, with no personal guarantees required.

The tradeoffs are control and liquidity. DST investors cannot influence management decisions, cannot force property sales, and cannot exit before the sponsor sells the underlying asset. Hold periods typically run 5-10 years. If those constraints fit your situation, the diversification and access benefits generally outweigh them.