Taco Bell NNN For Sale
Taco Bell began in 1962 as a venture by Glen Bell in Downey, California. Serving crunchy tacos and other Mexican-inspired dishes, the quick service restaurant (QSR) took off quickly, and it went public in 1970. Then, in 1978, Glen Bell sold the brand and its 868 restaurants to PepsiCo.
These days, Taco Bell is a publicly held company under the umbrella of PepsiCo’s spinoff company Yum! Brands. It’s the nation’s leading Mexican QSR brand, making it an attractive option for investing in commercial real estate with an NNN lease. Taco Bell also has a cult following and impressive brand recognition, adding even more appeal to the equation.
Tenant Overview
In 2022, there are over 7,700 Taco Bell locations in America, 11% of which are located in California. Taco Bell is ranked #4 on The QSR 50, a list cataloging the top 50 quick service restaurants in the nation. It’s in good company there, coming in behind only McDonald’s, Starbucks, and Chick-fil-A.
While Taco Bell has been experimenting with a variety of different store models, including its “Go Mobile” store, which has a dual drive-thru and no indoor seating in order to occupy a smaller footprint of land, its traditional stores are the most common option for NNN leases. Taco Bell has also been trying a Cantina model that’s eat-in only and serves adult beverages in urban areas with high levels of foot traffic – like Nashville, Tennessee.
Normally, Taco Bell locations are situated on lots ranging from 0.5 to 1.2 acres of land. The buildings measure between 2,000 and 2,600 square feet, and they need to have a drive-thru window. But because Taco Bell is interested in trying out new store models, there are plenty of properties that could be a good fit for a Taco Bell NNN lease.
| Taco Bell NNN Lease at a Glance | |
| Average sale price | $2,240,000 |
| Average NOI (net operating income) | $112,000 monthly |
| Average square feet | 1,000 - 2,600 |
| Average lot size | 0.5 - 1.2 acres |
| Typical lease term | 20 years |
| Escalators | Varies |
| Typical location | Urban and suburban locations with room for at least one drive-thru window |
| Ticker symbol | NYSE: YUM |
Taco Bell Lease Structure
It’s important to note that Taco Bell franchises most of its locations, meaning that there are a number of different lease agreements and guarantors operating under the larger banner of Taco Bell/ For that reason, lease terms (and cap rates) can vary based on the strength of the franchisee and the sales at a particular location.
That said, the most common lease Taco Bell uses is a 20-year NNN lease with four renewal options, occurring every five years. These options are often accompanied by rent bumps, but the exact percentages of those escalators vary.
The average cap rate, or capitalization rate, for a Taco Bell absolute net lease is 5.0%. The cap rate is a figure that’s used to analyze a real estate investment’s profitability and return potential. Typically, cap rates that land between 5% and 10% are considered good. A lower rate on that spectrum, like Taco Bell’s, indicates that the investment is stable and lower risk.
Why Choose a Net Lease Over a Gross Lease When Investing in Commercial Real Estate?
When you’re looking to invest in commercial real estate, you’ll find that there are many benefits that accompany choosing a net lease over a gross lease. These two types of leases are often viewed as opposites.
A gross lease involves a predetermined amount that a tenant pays to use a space. It doesn’t change due to operating expenses, which landlords generally cover. On the other hand, net leases allow landlords to hand off operating expenses to their tenants.
There are three tiers of net leases: single, double, and triple. Those levels are also called N, NN, and NNN leases. Each tier allows the landlord to pass additional expenses to the tenant, freeing the landlord from more and more risk as the tiers go up.
Single net leases (or N leases) pass property taxes over to the tenant in addition to the cost of rent, though landlords remain responsible for insurance, maintenance, repairs, and utilities. N leases are less common in the world of commercial real estate. Double net leases (or NN leases) and triple net leases (or NNN leases) are much more commonly used.
What Types of Net Leases Does Taco Bell Operate Under?
Throughout the company’s lifespan, Taco Bell has signed leases of various types. Today, the most popular option is an absolute triple net lease, or an NNN lease, with an initial term of either 15 or 20 years.
NNN leases are generally the most attractive type of lease for property owners and investors. That’s because they hold the tenant liable for operating expenses and costs related to the property, including insurance premiums, property taxes, and structural maintenance or repair costs. Those types of repairs can be pricey, especially big-ticket improvements like roofing.
With a Taco Bell NNN lease, a tenant will often pay a lower base rent since they’re on the hook for all of the operating costs. That said, NNN leases reduce the responsibilities related to property management since they pass the majority of costs onto the tenant.
How to Evaluate a Taco Bell Net Lease
When you’re looking to invest in a property with an NNN lease, it’s crucial to analyze both the property value and tenant strength. This is particularly true when you’re reviewing single-tenant properties like the ones Taco Bell prefers. In single-tenant standalone properties, your tenant concentration can be only 100% or 0%. In other words, you’ll be generating either 100% of your potential cash flow or none of it.
In order to ensure that your Taco Bell NNN lease pans out, you’ll need to make sure that the property you’re investing in meets the requirements that Taco Bell looks for in its locations – high-visibility storefronts with room for at least one drive-thru window. That will help keep your property occupied so that you continue getting p
Fortunately, most NNN lease tenants like Taco Bell are larger companies with strong balance sheets, so you can count on your payments arriving on time each month. You won’t be chasing down tenants to get your hands on your next check.
What Makes Taco Bell an Attractive NNN Tenant?
Taco Bell is a well-known Mexican-inspired QSR with a high level of brand recognition in America. It combines strong visibility with stable financials and versatile locations, making it an attractive option for an NNN lease.
In November, Yum! Brands (the parent company of Taco Bell, Pizza Hut, and KFC) released its third-quarter-earnings for fiscal 2022. The Taco Bell division of the company looked especially promising, with core operating profit up 11% year over year. Over the past year, Taco Bell added 98 gross new locations in 16 countries.
With its international presence expanding and its backing by a prominent and successful parent company, Taco Bell is situated well to continue profiting handsomely. It looks like Taco Bell has a bright future ahead. Overall, the company is a high-quality tenant that’s an excellent option for an NNN lease.
