Triple-Net-Lease Financing

7 Replies

Hello! 

I've been looking through varies types of real estate investments and came across commercial properties with triple-net leases for sale. I'm curious how funding works for these types of properties. I've been primarily looking at retail spaces that houses companies like Walgreens, CVS, etc.

Any input is great!

In most cases you are putting 25% down.

Lenders want to see net worth close to the loan balance after down payment and 10% liquid.

For example a buyer purchases a 4 million pharmacy with a good amount of years left on the lease with 1 million down. Lender wants to see net worth close to 3 million and 300,000 of that liquid. It's not an absolute criteria.

Pharmacies CVS, Walgreens, Rite Aid go from generally 2 million to 20 million depending on location and length of term left on the lease.

Have to be working with loads of cash to play in this space as a buyer.  

Devon, there are both national and local banks that will finance these properties. The most favorable financing terms will be with a long lease term left with a high credit tenant and as Joel mentioned, a solid financial statement from the buyer.

I'd be curious to hear who @Joel Owens thinks is best to finance such a deal. Any national recommendations?

There are specific CTL lenders out there who specialize in it.

Cap rates on single free standing have compressed so much that buyers are using local banks and using short term debt to eek out cash flow with personal guarantees.

Regular CMBS lenders that are non-bank see a lot of risk.

Buying a single NNN building for a 5 cap versus an 8 cap 3 to 4 years ago doesn't make sense because I can get a strip center today at an 8 cap and diversify my risk among many businesses instead of one.

The rent per sq ft and cost per sq ft is lower and you tend to get more valuable dirt with 2% rental increases for strip centers.  

I've heard indications from mortgage brokers of sizing to lesser of 8.5-9.0 DY or 65%-70% LTV and coupons in the 4.5 - 5.5% range. Expect significant structure around lease roll within the term. Can get IO with the right credit/lease term/market.

Shorter term floating rates around L+450. Be prepared to pony up on the refi!

These spreads are way too thin IMO. 

Yeah no short term loans for STNL unless you are putting 50% or more down or a lease at a high cap rate with a few years left before option renewal.

Otherwise you get hit with a refi bomb that could make a negative return with a fixed rate lease or one that has minimal increases in the primary term less than annual inflation.

People get these short term loans to massage the debt to work at lower cap rates for purchase but they are ticking time bombs.  

Originally posted by @Patrick Lim :

I've heard indications from mortgage brokers of sizing to lesser of 8.5-9.0 DY or 65%-70% LTV and coupons in the 4.5 - 5.5% range. Expect significant structure around lease roll within the term. Can get IO with the right credit/lease term/market.

Shorter term floating rates around L+450. Be prepared to pony up on the refi!

These spreads are way too thin IMO. 

What is IMO

(in my opinion)

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.