What Exactly Is A 'Hell Or High Water' Lease?

A product type is becoming increasingly popular: absolute triple-net leases. CBRE recently brought on Andrew Peeples and his team to work exclusively on the product line. But what exactly are they, and how do they differ from traditional triple-net leases? 

Also called "true triple-net leases" or more colloquially "hell or high water leases," they're the most extreme variation on triple-net leases, where a single tenant carries every imaginable real estate risk related to the property, in some cases even being obligated to rebuild the asset in the event of casualty. The leases can't be terminated and rent can't be abated under any circumstance. The idea is to make the rent absolutely net under all circumstances, equivalent to a bond. 

What type of tenant is crazy enough to ink such a deal? Bondable leases are used primarily by tenants with very high credit, favoring institutions and corporate campuses. The lessee can leverage the value of its high volume uninterrupted cash flow to secure a better deal.  

The deals favor real estate firms too. There's no management responsibility and no out of pocket cost. Andrew jokes all you need to execute a bondable lease is a checking account and wire address to send the money too.  

Absolute triple-net leases aren't new, but since the 2008 financial crisis they've dramatically risen in popularity, becoming a core asset type in many portfolios. Because of the relatively risk-free nature of the bondable lease, the deals are attracting more and more capital, particularly from foreign investors looking for a safe place to keep their money in American real estate.