Costco NNN ground leases trade at cap rates that are at or below the yield on Costco corporate bonds. The same A+ corporate credit that backs a Costco bond also backs the lease payment on a Costco NNN property. The nominal spread is at or below zero, which sounds counterintuitive: why pay more for the real estate than the bond? The answer is that the headline cap rate ignores the four structural advantages that turn a Costco NNN property into a substantially better after tax investment than a Costco bond, even at a lower nominal yield.
This page compares the two instruments side by side. For the full methodology and 12 company comparison, see the Bond to NNN Spread Anchor Page. For the broader Costco credit and store count detail, see the IG 180 tenant ratings database.
Costco Credit Profile
| Metric | Details |
|---|---|
| S&P Rating / Outlook | A+ / Stable (S&P affirmed at A+ stable in 2025; Moody’s upgraded to A1 in 2024.) |
| Moody’s Rating / Outlook | A1 / Stable |
| Investment Grade Status | Investment Grade (A+ / A1 (high A tier)) |
| Ticker | NASDAQ: COST |
| US Store Count | 600+ US Costco warehouses |
| Annual Revenue | ~$255 billion (FY2025) |
| Lease Structure | Mix of ground leases (preferred) and fee simple. Primary terms 15 to 25 years with multiple options |
The Spread: Costco Bonds vs NNN
| Metric | Costco Corporate Bond | Costco NNN Property |
|---|---|---|
| Yield / Cap Rate | ~4.95% (Senior unsecured at A+ rating, 10 year representative) | 4.50% to 5.50% |
| Nominal Spread vs Bond | Baseline | Negative 45 bps to Positive 55 bps |
| Minimum Investment | ~$1,000 (via broker) | $12 million to $40 million |
| Liquidity | Sells in seconds on secondary market | 60 to 90 day sale cycle |
| Income Taxation | Ordinary income (37% federal + state + NIIT) | Sheltered by depreciation |
| 1031 Exchange Eligible | No | Yes |
| Depreciation Deduction | None | 39 year straight line plus cost segregation |
| Appreciation Potential | Returns par at maturity | Real estate appreciates over time |
| Rent / Coupon Growth | Fixed coupon (no inflation protection) | Contractual escalations (typically 10% every 5 years) |
| Leverage Available | Typically unlevered | 60% to 75% LTV financing available |
Bond yield is approximate, derived from Costco’s rating tier position relative to the ICE BofA A US Corporate Index (~4.95 percent as of Q2 2026). NNN cap rates reflect market transaction benchmarks from InvestmentGrade.com’s IG 180 database. Both data sets fluctuate daily. This is not investment advice.
After Tax Comparison: $1,000,000 Invested in Costco
The negative or neutral nominal spread reverses dramatically when taxes are applied. Below is a side by side comparison assuming a high bracket investor (37 percent federal, 5 percent state, 3.8 percent NIIT, 45.8 percent combined).
| Metric | Costco Bond | Costco NNN (Unlevered) | Costco NNN (Levered 65% LTV) |
|---|---|---|---|
| Investment / Equity | $1,000,000 | $1,000,000 | $1,000,000 equity ($2,857,143 property) |
| Annual Income / NOI | $49,500 | $50,000 | $142,860 NOI |
| Annual Debt Service | N/A | N/A | ($126,470) at 5.5%, 30 yr amortization |
| Pre Tax Cash Flow | $49,500 | $50,000 | $16,390 cash flow plus principal paydown |
| Depreciation Shield | $0 | ~$56,000 annually (cost seg accelerated) | ~$160,000 annually (allocated to equity) |
| Taxable Income | $49,500 ordinary | ~$0 (depreciation offsets cash flow) | ~$0 to negative (passive loss generator) |
| Tax at 45.8% combined | ($22,670) | ~$0 | ~$0 |
| After Tax Income | $26,830 | $50,000 | $16,390 cash plus amortization |
| Effective After Tax Yield | 2.68% | 5.00% | 1.64% cash plus appreciation and amortization |
Depreciation values use approximate cost segregation accelerated depreciation. Actual depreciation depends on land allocation, building type, and cost segregation study results. Levered scenario assumes 35 percent down at 5.5 percent commercial mortgage. Tax assumptions exclude alternative minimum tax. Consult a tax professional.
Why Costco NNN Trades Through the Bond Yield
Costco’s membership warehouse model produces some of the highest sales per square foot in retail (over $1,500 per square foot at top stores). The A+ credit profile, exceptional store level economics, and tightly controlled unit growth (typically only 25 to 30 new stores per year globally) make Costco one of the most sought after NNN credits in the market. Supply is structurally constrained.
- Trophy real estate quality. Costco sites are typically located on prime commercial corridors with high traffic counts and strong demographics.
- Long lease term certainty. Costco leases provide multi decade contracted income from an investment grade credit.
- Institutional buyer competition. Costco NNN is bid by REITs, sovereign wealth funds, pension funds, and family offices, compressing cap rates below pure yield based pricing.
- Tax advantaged after tax math. The depreciation shield converts the cap rate into a higher after tax yield than the bond delivers.
- 1031 exchange eligibility. A Costco property can roll forward indefinitely through 1031 exchanges, deferring all capital gains tax until death.
Key Underwriting Considerations for Costco NNN
- Lease term remaining. Institutional bid concentrates on 12+ year remaining terms. Shorter terms trade 50 to 150 basis points wider.
- Ground lease vs fee simple. Ground leases trade tighter due to land ownership and stronger residual value, but cost segregation depreciation is more limited.
- Rent escalation structure. Verify the schedule. Flat rent during primary term with bumps at options is less inflation protected than annual or periodic escalations.
- Geographic and market quality. Costco selectively closes underperforming locations but the rate is among the lowest in big box retail. The membership model creates strong store level loyalty and high replacement cost. Backfill scenarios (BJ’s, Sam’s Club) provide additional residual support.
- Guarantor strength verification. Confirm corporate guarantee (not franchisee) and pull current rating action history before closing. S&P affirmed at A+ stable in 2025; Moody’s upgraded to A1 in 2024.
Frequently Asked Questions
Costco is rated A+ (S&P) and A1 (Moody’s) with stable outlooks. S&P affirmed at A+ stable in 2025; Moody’s upgraded to A1 in 2024.
Q2 2026 market cap rates run 4.50 to 5.50 percent depending on lease term remaining, geographic market, and rent in place. The average sits near the midpoint of the range for institutional quality assets with 12+ years remaining and prime locations.
Four structural advantages: depreciation deductions that shelter cash flow from current taxation, 1031 exchange eligibility for indefinite capital gains deferral, contractual rent escalations that provide inflation protection, and real estate appreciation potential. After tax, a 4.50 percent Costco NNN cap rate delivers higher cash yield than a 4.95 percent Costco bond. Plus the institutional buyer pool (REITs, family offices, 1031 exchangers) competes for limited supply, compressing cap rates further.
Costco NNN properties typically transact between 12 million dollars and 40 million dollars depending on geographic market, traffic counts, lease term remaining, and rent in place.
Costco NNN cap rates often trade at or below Costco bond yields. The negative nominal spread reverses after tax: depreciation deductions shelter the NNN cash flow while bond coupon income is fully taxed at ordinary rates, so the after tax yield on the NNN property substantially exceeds the after tax bond yield.
Considering Costco NNN?
We source Costco NNN properties nationally across all lease terms and price points. On the majority of NNN transactions, the listing broker pays a cooperating commission, so there is typically no separate fee to you as the buyer for professional representation.
Find It — On market and off market Costco NNN sourced and underwritten for your criteria.
Fund It — 150+ lender relationships. Costco’s A+ credit qualifies for competitive NNN financing terms.
Exit It — Costco NNN benefits from a deep institutional and 1031 exchange buyer pool. When you sell, demand is consistent.
Exchange It — 1031 exchange into or out of Costco NNN with deadline driven execution.
Educational content only. InvestmentGrade.com is a commercial real estate brokerage and educational publisher. We do not sell, broker, underwrite, or solicit any bonds, securities, or investment products. Yields, ratings, and prices referenced are approximate, fluctuate continuously, and are sourced from public market data as of Q2 2026. Nothing on this page constitutes investment advice, an offer to sell, or a solicitation to buy any security. Consult a licensed broker-dealer, registered investment advisor, or tax professional before making any investment decision. For SEC investor education, visit investor.gov.
