What is a 1031 exchange in real estate?

A 1031 exchange (named after IRS Section 1031) allows real estate investors to defer capital gains taxes by reinvesting the proceeds from a sold investment property into a 'like-kind' replacement property. Key rules: (1) The replacement property must be identified within 45 days of closing the relinquished property; (2) The exchange must close within 180 days; (3) To defer all capital gains, the replacement property must be equal or greater in value and you must reinvest all net equity; (4) A qualified intermediary (QI) must hold the proceeds — you cannot touch the money. 1031 exchanges work for any investment real estate: residential rentals, commercial buildings, vacant land, NNN leases. Primary residence and fix-and-flips do not qualify. The tax deferral compounds over time — investors use serial 1031 exchanges to build wealth over decades, ultimately stepping up the cost basis at death, eliminating the deferred gain for heirs.

What is a triple net (NNN) lease?

A triple net (NNN) lease is a commercial real estate lease structure where the tenant pays the three 'nets' in addition to base rent: (1) Property taxes — the tenant pays the real estate taxes on the property; (2) Building insurance — the tenant maintains and pays for property insurance; (3) Maintenance/CAM — the tenant is responsible for maintenance, repairs, and common area maintenance. NNN leases are common in retail (fast food, dollar stores, pharmacies, auto parts) and industrial properties. From an investor's perspective, NNN leases are attractive because they provide passive, predictable income with minimal landlord responsibilities — making them ideal for 1031 exchange buyers seeking management-free ownership. Cap rates for investment-grade NNN properties (McDonald's, Dollar General, CVS, AutoZone) typically range from 4.5-6.5%. Lease terms are usually 10-25 years with rent escalations of 5-10% every 5 years or 1-2% annually.

What is a cap rate in commercial real estate?

Cap rate (capitalization rate) is the primary metric for valuing income-producing commercial real estate. Formula: Cap Rate = Net Operating Income (NOI) ÷ Property Value. Example: A property with $100,000 NOI selling for $1,500,000 has a 6.67% cap rate. NOI = Gross rental income minus operating expenses (taxes, insurance, maintenance, management) — before debt service. Cap rates reflect risk: lower cap rates = lower risk, higher prices (Class A multifamily in major markets: 4-5%); higher cap rates = higher risk, lower prices (secondary markets, older buildings: 7-9%). Cap rates move inversely with interest rates — when interest rates rise, cap rates tend to rise (prices fall). For 1031 exchange buyers: the spread between cap rate and borrowing rate (debt yield spread) determines cash-on-cash returns; a 6% cap rate with 7% mortgage rates creates negative leverage. Current (2026) NNN market: investment-grade single-tenant net lease properties trade at 5-6.5% cap rates depending on tenant credit, lease term, and location.

Starbucks NNN
lease analysis.

Starbucks is one of the most widely-held QSR NNN tenant profiles in the United States. The company operates a mix of corporate-operated locations and licensed units (grocery, airport, etc.). Standalone drive-through Starbucks properties are the most sought-after format for 1031 NNN buyers because of their strong credit, predictable cash flow, and growing same-store sales.

GM By Glen Gomez-Meade~7 min read Published Apr 23, 2026

Read this first

Credit ratings, cap-rate bands, lease structures, and corporate strategy shift constantly. Every figure on this page — credit profile, capitalization rate range, prototype size, lease term — may be stale by the time you read it. The tenant's credit can change between rating-agency reviews; cap rates move with interest rates and market sentiment monthly.

The Upleg makes no representation that any specific number, rating, or lease characteristic is current or correct for any particular Starbucks property you are evaluating. Pull current credit reports, verify the actual lease document, and confirm market cap rates with a working CRE broker before you bid. The Upleg, its author, and its parent disclaim all liability for any outcome resulting from reliance on this content.

Quick reference · Starbucks

Legal entity: Starbucks Corporation
Parent: Starbucks Corporation (SBUX)
Credit profile: Investment-grade (BBB+). Globally dominant coffee brand.
Typical lease: NNN; ground lease structures common for standalone drive-through.
Typical term: 10 years initial with 5-year options.
Rent bumps: 10% every 5 years or modest annual increases.
Prototype size: Standalone drive-through: ~2,000–2,400 SF on a 0.5–1.0 acre site.
Cap rate band: 5.00–6.00% (2026)

About Starbucks as a NNN tenant

How Starbucks structures its NNN leases

Starbucks NNN leases are typically triple net with corporate guarantee. Some standalone drive-through properties are structured as ground leases (land only, Starbucks builds and owns the structure); others are full building leases.

Store specs and site profile

Standalone drive-through Starbucks prototypes are typically 2,000–2,400 SF on a 0.5–1.0 acre site with dedicated drive-through and parking. Licensed units (grocery in-line, airport) are different formats not typically traded as single-tenant NNN.

Red flags on a Starbucks NNN deal

Very short remaining primary term
Low-drive-traffic location relative to typical Starbucks site selection
Basis materially above replacement cost
Competing coffee operator within immediate trade area

What to underwrite before buying a Starbucks property

Remaining primary term and options
Ground lease vs. full building lease structure
Trade-area traffic counts and demographics
Same-store sales data (anecdotal from market brokers)
Basis per SF vs. local replacement cost

Frequently asked questions

What cap rate do Starbucks NNN properties trade at?

In 2026, Starbucks NNN with long remaining primary term in primary/secondary markets trades at 5.00–5.75% cap rates. Ground lease Starbucks often trades slightly tighter than full-building leases given the simpler landlord role.

Is a Starbucks ground lease different from a full-building Starbucks NNN?

Yes. In a ground lease, Starbucks leases only the land and builds/owns the improvements. At lease end, improvements typically revert. In a full-building lease, the landlord owns both land and improvements and leases the whole package. Both are common; ground leases trade at tighter cap rates typically.

Using Starbucks in a 1031 exchange

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Author

Glen Gomez-Meade

Glen writes The Upleg. More about Glen →

Disclaimer

The Upleg provides general educational information about commercial real estate. Nothing on this site or in any email, guide, or playbook constitutes tax, legal, financial, or investment advice. No attorney-client, broker-client, or fiduciary relationship is created by your use of this site. Reading any content does not retain the author or The Upleg to represent you in any transaction.

Before acting on anything you read here: consult a Qualified Intermediary (QI) for 1031-specific matters, a Certified Public Accountant (CPA) for tax treatment, and a licensed real estate attorney for contract and closing matters. Rules vary by state, and fact-specific outcomes cannot be predicted from general content. The Upleg and its author make no representations or warranties about the accuracy, completeness, or currency of any information presented, and disclaim liability for any outcome resulting from reliance on this content.

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Where the author is a licensed real estate broker and a transaction discussed is one he has represented or is representing, that relationship is disclosed inline.