Who is the right lender for this NNN property?

Question

All:

I'm about to put an LOI on an NNN property (Jiffy Lube) in Houston and am looking for the right lender. Here are the specs:

Purchase Price: ~825k

Down Payment: 300k

Loan Amount: ~525k

LTV: 64%

Years Remaining on Lease: 6.7

Corporate Guarantee: Yes

Property Built: 1987

NOI: $46,571

20 Year AM DSC: ~1.10

25 Year AM DSC: ~1.25

I currently have loans with 9 different banks and so I'm fairly familiar with the underwriting process. I believe that most underwriters will want/require a 25 year AM because the DSC is pretty tight.

I have plenty of lenders that would do this loan if the property was in/near South Carolina and only required a 20 year AM. Their total fees (origination, appraisal, Phase 1) I believe would be in the $5,000-$7,000 range. I have a national NNN lender that will give me a 25 (or 30 year) loan on this property but his minimum origination fee is 1% or $10,000, whichever is less. I believe his appraisal fees and Phase 1 requirements may be more expensive as well. Probably 15k-18k total in fees is my best guess.

So I'm stuck between a loan too small for a big lender and a loan in the wrong market for another.

I think the right bank may be a local-ish lender in the Texas market. I realize that I'm an out-of-state borrower but a 35% down payment on a NNN is pretty low on the risk scale I would imagine.

Can anybody provide some guidance or recommendations on this?

Kevin Sellers · Answer

Will - you should be able to find smaller properties leased to investment grade tenants with 10+ years remaining on the lease term IF you are willing to buy in tertiary markets. I am not talking about rural areas (like where some of the DGs are being built) but small towns or the periphery of mid-sized towns where there might be 10-20K population in the the 5-mile radius. Look for Advance Auto, AutoZone, Sherwin Williams, DaVita, Fresenius properties. For properties with these tenants, financing is available up to 70% LTC with super low 10-year fixed rates.

Ronald Rohde · Answer

Plenty of Texas banks, Texas Capital, Southwestern, Plains Capital.

Good luck!

Kevin Sellers · Answer

Your parameters are very challenging. Have you thought about joining with another investor who can invest about the same amount of cash? Then you could double the purchase price of your target property range.

Will Gaston · Answer

Thanks for the feedback @Kevin Sellers. I've seen stuff in those secondary markets but I'd personally prefer something in a large and/or growing MSA. I know there are plenty of bad locations in big cities but again, at my price point, I don't have as much choice as I would if I were at 1.5MM-2.0 MM.

Will Gaston · Answer

Thanks @Cody L. It is on Highway 6 North (77084). I agree that the oil change biz is a dying business as well but how long will it take to die?

I'm doing a 1031 from some highly management intensive property and want to purchase something safe w/ no management responsibilities.

I also agree that I could get something better if I had a higher price range. Most of the NNN available with the down payment I have and ability to purchase in the 800k-1MM range are Dollar General type properties in rural areas that will have little to no value once they go dark. I feel like that if/when this property goes dark I have a really good chance at getting a tenant quickly.

Open to suggestions but finding a strong MSA/national tenant/long lease in this price range has been really difficult in my experience.

Cody L. · Answer

Green bank / Veritex

Texan bank

Origin bank

What area of Houston? I hope it’s a good area to buy a mid 5 CAP with a medium amount of time left on (imo) a dying business

If this doesn’t have strong land value backing it up I’d try to get better pricing. There are better deals out there

Jaysen Medhurst · Answer

@Will Gaston, I'd just start calling around to all of the local banks, CUs, too. Have purchased similar properties before? I ask because when I was recently looking at purchasing a portfolio of properties that included an auto shop. The lenders were all smiles and pleasantries until that shop came up. They wanted nothing to do with it due to the environmental risks and even said they would specifically exclude that from any lending.

Who is the right lender for this NNN property?

Who is the right lender for this NNN property?

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