A single-tenant net lease asset is priced like a building and behaves like a bond. One tenant, one lease, one long stream of contractual payments backed by a corporate credit. Strip away the roof and the parking field and what remains is a fixed-income instrument: the cap rate is the coupon, the tenant's credit rating is the issuer rating, and the remaining lease term is the duration. The land underneath is a residual, not the point. When you buy single-tenant net lease, or STNL, you are underwriting a promise to pay, and the quality of that promise sets the price more than the quality of the dirt.
The thesis: treat STNL as real estate and you will misprice it, because you will anchor on location and building when the value is driven by credit and term. Treat it as a bond and the whole asset class snaps into focus.
Key Takeaways
A single-tenant net lease transfers taxes, insurance, and maintenance to the tenant, leaving the owner with a near-passive stream of contractual rent that behaves like a bond coupon.
Tenant credit and remaining lease term price the asset. The Boulder Group's Q1 2026 research shows single-tenant net lease cap rates averaging 6.80 percent, with premier long-term credit deals near 4.30 to 4.60 percent and shorter-term, weaker-credit deals at 9.00 percent or higher.
Cap rate is the coupon and lease term is the duration. A long lease to an investment-grade tenant is a long-duration, high-grade bond and reprices sharply when interest rates move.
Investment grade means a rating of BBB- or Baa3 and above from S&P or Moody's. Net lease REIT Global Net Lease reported in its FY2025 10-K that 66 percent of its rental income came from investment-grade-rated tenants.
The building is the recovery value, not the investment thesis. You are buying the credit and the contract first, the real estate second.
Why does a single-tenant net lease behave like a bond?
A single-tenant net lease behaves like a bond because the owner holds a fixed schedule of contractual payments from a single obligor, with operating costs pushed to the tenant. Under a true triple-net structure, the landlord collects rent and little else touches the income line. What is left is a coupon: predictable, credit-dependent, and sensitive to interest rates.
In a gross lease, the owner runs a business. Vacancy, taxes, roof repairs, and rising insurance all land on the owner, and net operating income swings with operations. A net lease removes most of that. In its purest form, the triple net lease makes the tenant responsible for property taxes, building insurance, and maintenance, so the rent the owner receives is close to the rent the owner keeps. That is why the analogy holds: a bond investor does not maintain the issuer's factories, and an STNL owner does not maintain the tenant's store. Both simply collect on a contract.
The consequence is that the two levers that price a bond also price an STNL asset. The first is credit quality, how likely the payer is to keep paying. The second is term, how long the payments are contracted to run. Location, construction, and rent per square foot still matter, but they matter mostly as a floor on recovery if the tenant defaults, not as the engine of return. This is the mental shift the asset class demands: you are underwriting an issuer and a maturity, wrapped in a building.
How do tenant credit and lease term set the cap rate?
Tenant credit and lease term set the cap rate the way rating and duration set a bond yield. Stronger credit and longer term compress the cap rate, because the income is more certain and lasts longer. Weaker credit and shorter term widen it, because the buyer demands more yield for default risk and re-leasing risk. The cap rate is the market's coupon on that specific promise.
The Boulder Group, a net lease brokerage that publishes quarterly cap rate research widely cited in industry media, reported that single-tenant net lease cap rates averaged 6.80 percent in the first quarter of 2026, roughly flat from the prior quarter. Underneath that headline, the sector spread is wide: retail averaged 6.55 percent, industrial 7.15 percent, and office 7.90 percent. The tenant-level dispersion is wider still. Premier long-term credit deals, such as 15-year McDonald's ground leases, priced near 4.30 to 4.60 percent, while shorter-term or lower-rated deals such as certain Walgreens locations priced at 9.00 percent or above.
That gap of more than 400 basis points between the tightest and widest credit tenant is the whole thesis in one number. It is not a location premium. It is a credit-and-term premium, and it maps almost exactly to how a bond desk would price a AAA long bond against a shorter, lower-rated note.
Profile | Tenant credit | Remaining term | Representative cap rate |
|---|---|---|---|
Premier ground lease | Investment grade, top tier | 15 years | 4.30 to 4.60 percent |
Core credit retail | Investment grade | 10 to 15 years | 5.50 to 6.55 percent |
Solid non-rated | Strong regional operator | 7 to 10 years | 6.55 to 7.50 percent |
Shorter-term drugstore | Weakening credit | 3 to 5 years | 9.00 percent or higher |
Cap rate ranges above blend The Boulder Group's Q1 2026 sector and tenant figures with the general rule that credit and term drive pricing. Read the cap rate as the coupon the market assigns to that exact combination of issuer and maturity.
What does the bond-like yield and duration math look like?
The math looks like a bond because it is one. Cap rate is the current yield on the purchase price, contractual rent bumps are the coupon step-ups, and the remaining lease term is the duration that governs how much the value moves when market yields move. Work a simple example and the interest-rate sensitivity becomes concrete.
Take a single-tenant net lease asset with 1,000,000 dollars of annual rent bought at a 6.00 percent cap rate. The price is 1,000,000 divided by 0.06, or 16,666,667 dollars. That 6.00 percent is the running yield, directly analogous to a bond's coupon on face value. Now assume the tenant is investment grade with 15 years left on the lease. That long term is what makes the income bankable and what compresses the cap rate in the first place.
Now move rates. Suppose market cap rates for that credit rise 100 basis points to 7.00 percent, as they might if the 10-year Treasury climbs. The 10-year Treasury yield traded around 4.65 to 4.71 percent in late July 2026, per Advisor Perspectives and Trading Economics, and net lease cap rates track that benchmark plus a spread. At a 7.00 percent cap rate, the same 1,000,000 dollars of rent is now worth 14,285,714 dollars. The value fell 2,380,953 dollars, roughly 14 percent, on a 100-basis-point move, with no change in the tenant, the building, or the rent. That is duration risk, and it is why a long STNL lease reprices like a long bond. Shorter leases and built-in rent escalations shorten effective duration and cushion the move, exactly as a shorter maturity or a floating coupon would.
The comparison to corporate credit is direct. Investment-grade corporate spreads on the ICE BofA U.S. Corporate Index sat near 77 basis points in mid-May 2026, per Nuveen fixed-income commentary. An STNL cap rate is that same idea in real estate form: a base rate plus a spread for credit and term. Buy the building, but price the bond.
Where does the bond analogy break down?
The analogy breaks down at recovery and control. A bond is a pure claim on cash; an STNL asset is a claim on cash backstopped by a physical building the owner controls. If the tenant defaults, a bondholder joins a creditor line, while the STNL owner keeps the real estate and can re-tenant, redevelop, or sell it. That residual is a feature bonds do not have.
This is why underwriting cannot stop at the credit rating. Two 6.00 percent deals to the same tenant are not equal if one sits on a hard corner in a growing metro and the other sits on a dying commercial strip. The first has a real second use and a real recovery value; the second is a bond with a weak collateral floor. Location and building quality reassert themselves precisely at the moment the coupon stops, which is the moment that matters most.
The other break is optionality. Bonds have call schedules; leases have renewal options, early termination rights, and co-tenancy triggers that reshape the cash flow in ways a clean bond does not. A single go-dark clause or an unexercised renewal can turn a 15-year duration into a 5-year one overnight. The point is not that the bond frame is wrong. It is that the frame gets you 80 percent of the way to the right price, and the last 20 percent is real estate: recovery value, control, and the fine print of the lease. For the related question of how net structures shift operating risk between the parties, see triple net versus gross leases and who carries the risk.
Frequently Asked Questions
What makes a single-tenant net lease investment grade?
Investment grade refers to the tenant, not the building. A tenant is investment grade when S&P or Moody's rates it BBB- or Baa3 and above, signaling a low probability of default. Investment-grade STNL trades at tighter cap rates because the coupon is more certain. Global Net Lease reported that 66 percent of its FY2025 rental income came from investment-grade-rated tenants.
Why do longer net leases trade at lower cap rates?
Longer leases trade at lower cap rates because a longer contractual term means more years of certain income, which buyers pay up for. The Boulder Group's Q1 2026 data shows 15-year premier credit deals near 4.30 to 4.60 percent against 9.00 percent or higher for shorter-term deals. Longer term is longer duration, and long, high-grade duration commands a premium, just as it does in bonds.
Is the building irrelevant in a single-tenant net lease?
No, but it is secondary. While the lease is performing, the building is nearly passive and the credit drives value. The building becomes decisive only at default, when it sets recovery value. A strong location with real alternative uses is a high recovery floor; a single-purpose box in a weak market is a low one. Underwrite both the coupon and the collateral.
Conclusion
Single-tenant net lease rewards the buyer who reads it correctly and punishes the one who does not. Price it as real estate and you will overweight the building and underweight the two things that actually move value: who is paying and for how long. Price it as a bond and the asset class becomes legible. The cap rate is the coupon, the tenant rating is the credit, the lease term is the duration, and the building is the recovery value you fall back on if the coupon stops. The discipline is to underwrite the promise first and the property second, then hold both in view. An STNL asset is a corporate credit you can stand inside, and the operator who never forgets which half is driving the price is the one who does not overpay for a long lease to a weak name, or dismiss a short lease to a strong one on a corner that will always re-lease.