Net Lease

A net lease makes the tenant responsible for some or all of the property's operating expenses on top of rent. In a triple net lease, the tenant pays taxes, insurance and maintenance. Net leases are common in commercial property and change what a gross rent multiplier means.

When the tenant pays nearly every expense, rent is close to net operating income, and GRM becomes close to the inverse of the cap rate. A triple net property at a GRM of 10.4 has a cap rate of about 9.6%, far higher than a residential rental at the same multiplier where the owner pays the bills.

That makes GRMs meaningless across lease types. Comparing a triple net retail building to an apartment building by GRM puts the apartment's expenses on one side and nothing on the other. Compare net lease properties on cap rate and residential rentals on GRM, and never mix the two in the same comp set.

Further reading: Net Lease on Wikipedia.