Corporate Bond vs NNN Lease
Was wondering if any body has any insight or reasonable explanation for the comparison between corporate bonds vs a property net leased to that corporate.
Typically we want to see a certain spread between the bond rate and the going-in cap rate, which makes sense. But what I'm struggling to understand is that a 15 year lease will trade at a lower cap rate than a 10 year lease, while a 15 year bond will have a higher interest rate than a 10 year bond. So if the spread between a 10 year bond and a 10 year NNN lease is 300 bps, the spread for 15 years will be more like 200 bps. Doesn't really seem to be an apples-to-apples comparison.
Would appreciate any insights or discussion.
Because the risk drivers aren't the same. The longer a duration for a bond, the more susceptible the bond is to interest rate risk, whereas longer leases are less risk for a LL. Also, LLs are protected from inflation w/ NNNs, and there's no forfeiture of consumption when you lease up a space.
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