Lenders for buying NNN properties?

Question

Is there a recommended list of well rated brokers and direct lenders for buying NNN single tenant properties (like Walgreens)?

Jacob Franz · Answer

As Kevin mentioned, NNN deals with strong national or regional credit and sufficient term can be financed with little trouble. I own three Dollar General locations and just closed a deal with 75-25 LTV, 25 year AM, 10 year term, and a 3.95% interest rate. The deal cashflows well and has ten-years of term. As long as you have sufficient lease term remaining, lenders are more than willing to lend on the strong retailers and QSRs out there.

I am happy to answer any questions you might have if you want to jump on a call!

Kevin Sellers · Answer

Yes, required third party reports are appraisal, Phase I ESA and ALTA survey.  Appraiser relies most heavily on the income approach to value the investment property.  I have had zero issues with appraised values - all are coming in at or above the sales price.

Preston Porter · Answer

@Kevin Sellers Thanks!  Is an appraisal done on the property / lease ?

Kevin Sellers · Answer

The loan for the Walgreens that we closed yesterday was 3.87% fixed for 10 years on 25-year amortization, declining pre-payment penalty, no lender origination fee and partial recourse.  Other WAGs closed this year were 3.89% to 3.91% interest rates fixed for 10 years on 25-30 year amortization schedules.  Advance rates can go as high as 70% LTC/LTV.  Loan terms are virtually the same for properties tenanted by CVS, DaVita, Fresenius, Starbucks, Tractor Supply, O'Reilly Auto, Advance Auto and AutoZone.  Same loan terms with slightly higher interest rate (10-15 basis points) for Dollar General, Family Dollar and Dollar Tree as long as there are other national tenants in the immediate area of the property location.  For dollar stores located in rural/remote areas, max advance rate is 65% with a 0.375% lender origination fee.  Properties must have at least 8 years remaining lease term and preferably 10+ with best rates at 13+ years.

Preston Porter · Answer

@Kevin Sellers Can you talk about what typical terms look like?  Curious.

Kevin Sellers · Answer

Steve - I am a commercial mortgage broker specializing in single tenant properties nationwide.  I arranged financing for three Walgreens properties this year and a fourth is closing today.  Would be happy to discuss.  Thank you!

David M Trapani · Answer

Try some of the larger credit unions in the areas where you are looking to purchase. Often, they will look at the lease, the quality and strength of the tenant, the cash flow, as well as your financial statement.

It seems they often keep these loans on their books and do not need to meet stringent governmental or quasi-governmental guidelines for reselling them on the secondary market. So they run their own underwriting and criteria.

These can be done for as little as 40% LTV.Are you working with a commercial broker?

Any experienced commercial brokers have lending brokers they work with & who can connect you with viable lending sources for NNN commercial investments.

Mark H. Porter · Answer

@Steve Kauss that would work perfectly.  I’m buying two different asset classes with my 1031 and in different geographies.  I didn’t need to separate them between states but it looks like that’s they way it will pan out.  I’ll be adding another state to my tax returns but that’s my accountants work, not mine.

For the dollar store, try as best you can to keep out of the rink-dink towns with no growth.  Also, location is really paramount as you may have to repurpose at the end of the lease.  Road frontage, stoplight intersections, surrounding national chains - all give a solid investment as they remove risk.  Don’t get tempted by the 3-year remaining with 8% caps.  There’s a reason behind everything.

Steve Kauss · Answer

@Mark H. Porter Thanks for sharing your thoughts.

I was considering buying 2 smaller properties instead of one big Walgreens. Say 1 Davita and 1 Dollar General at different locations. There's still risk but it's unlikely that both will vacate at the same time and these smaller properties might be easier to repurpose.

Preston Porter · Answer

@Mark H. Porter Thank you for the info!

Yes, this seems like a play for institutional or uber-wealthy investors.  Therefore, If you're looking to borrow money to do one of these plays, my opinion that you might be barking up the wrong tree.

Even with AAA tenants like Walgreens, it would be nice to have a fallback position.