NNN Lease Debt Assumption - Here's the details and questions

6 Replies

Property Details:

Purchase Price: $9,500,000

Annual Rent: $498,804 

Cap Rate: 5.25%

Lease Expiration: 2/28/2038

Lease Type: NNN

Year Built: 2013 

Options: 10, 5-year

Gross Leasable Area: 14,534 SF

Building Class: B

Lot Size: 3.20 AC 

Tenancy: Single 

No. Stories: 1

Assumable debt:

Wells Fargo Loan Balance: $4,728,897 

Interest Rate: 4.5% 

Amortization: 30 years 

Annual Payment: $304,011 

Cash-on-Cash Return: 4.01%

Lease abstract:

Tenant: Walgreens 

Guarantor: Walgreens Boots Alliance, Inc. (NYSE: WBA, S&P: BBB+) 

Lease Structure: Absolute triple-net 

Lease term remaining: 21+ years 

Lease expiration: 2/28/2038 

Options to extend: 10, 5-year options to extend 

Landlord responsibilities: None. The tenant is responsible for all repair and maintenance of the property, including the roof and structure.

Site demographics:

Average Daily Traffic Count (ADT): 23,000 

1-mile Average Annual Household Income (AHHI): $99,969 

POPULATION: 

1-mile radius: 6,095

3-mile radius: 42,886 

5-mile radius: 124,077 

Questions(using the information provided above):

1. How does assuming the debt of commercial properties work in general, and specifically for NNN properties?

2. What requirements may need to be met by the lender and can bringing on an equity/funding/credit partner help close such a deal? 

3. Is there usually a down payment required? How much should I expect?

4. Am I simply assuming the balance on the loan or paying the listed price?

5. Is it possible to do a seller carry back for the down payment?

6. Is it possible to positively leverage(100% financing scenario) such a deal using creative financing(private lender(s), hard money loan, etc.?

Thanks for everyone who helps me this and Merry Christmas to all!

I would be surprised if the bank would allow an assumption on this loan. Have you already confirmed this ? The owner carry back would be up to the current owner. I’m more than happy to help out here and can help with all of this but need to understand more. What is the current status of this deal ? Is it currently for sale ? Send as much info as you can and I’ll dig in on all of these questions.

NO

You would put down about 5 million to assume the existing loan. There is no mention of when the loan is due. That is important as pharmacies typically have FLAT RENT during the primary lease term.

There is generally a loan assumption fee and borrower needs to qualify to assume the loan.

Annul rent of 498,804 today is not worth that in 2020,2030 year dollars etc. because of inflation.

Often very heavy pre-pay penalties into the 7 figures to break a loan early like this and put new debt on it. These are often bought for tax shelters or estate planning purposes. Some developers use them for pay down and re-advance features.

What happens if loan comes due and interest rate is then 7% in the market 6 years from now but rent is still flat and the same? Even starting at such a low LTV lender likely on new loan will want more cash. This is why sellers generally sell then and 1031 to something else.

Hard money loan? The property is only cash flowing about 4%. Know any hard money lenders at 4%?

You might want to read up on some material for NNN space to fully understand it. Things you are proposing are not realistic.

Good luck.

Originally posted by @Joel Owens :

NO

You would put down about 5 million to assume the existing loan. There is no mention of when the loan is due. That is important as pharmacies typically have FLAT RENT during the primary lease term.

There is generally a loan assumption fee and borrower needs to qualify to assume the loan.

Annul rent of 498,804 today is not worth that in 2020,2030 year dollars etc. because of inflation.

Often very heavy pre-pay penalties into the 7 figures to break a loan early like this and put new debt on it. These are often bought for tax shelters or estate planning purposes. Some developers use them for pay down and re-advance features.

What happens if loan comes due and interest rate is then 7% in the market 6 years from now but rent is still flat and the same? Even starting at such a low LTV lender likely on new loan will want more cash. This is why sellers generally sell then and 1031 to something else.

Hard money loan? The property is only cash flowing about 4%. Know any hard money lenders at 4%?

You might want to read up on some material for NNN space to fully understand it. Things you are proposing are not realistic.

Good luck.

Thank you for you comment. I have yet to find out a lot of information about this deal because of the holidays. I have discovered that there is a 1% assumption fee for the loan as well as qualification requirements. And I will update when I find out more about how the loan is structured. I have found lenders who lend up to 100% LTV/LTC for these types of commercial properties. But with this comes inspection fees with the application and deposit amounts that are a percentage of the loan that may be required before and/or after the signing of the commitment to the loan which may be refundable after the closing. But I am determined to make this work. Thank you and have a Happy New Year.

Good luck William.

I have seen no such lenders doing 100% appraised value loans on triple net properties. The fact the lenders are taking fees upfront and saying refundable etc. is a red flag. There are predatory lenders who do not close many loans, promise the moon, and then make profit off of fees. They close something under different terms given every once in awhile to not run afoul of the SEC for not making any loans at all.

Just be very careful out there. If you successfully close a deal like that post back with terms etc. 

I’ve done 100% financing deals they are called CTL transactions. They are based entirely on the credit of the tenant and are more of a bond than a real estate loan.

The loan has to amortize out to $0 within the term of the base lease period which is why they typically only work on deals with 15-25+ years remaining on the lease. Otherwise more cash is required at closing to meet the required debt coverage covenants.

This deal doesn’t sound like a candidate for a CTL transaction but I want people to know that 100% financing is available for single tenant deals with an “INVESTMENT GRADE” tenant. That said it’s not always the best debt product for every deal or situation.

Originally posted by @Derek Carroll :

I’ve done 100% financing deals they are called CTL transactions. They are based entirely on the credit of the tenant and are more of a bond than a real estate loan.

The loan has to amortize out to $0 within the term of the base lease period which is why they typically only work on deals with 15-25+ years remaining on the lease. Otherwise more cash is required at closing to meet the required debt coverage covenants.

This deal doesn’t sound like a candidate for a CTL transaction but I want people to know that 100% financing is available for single tenant deals with an “INVESTMENT GRADE” tenant. That said it’s not always the best debt product for every deal or situation.

 Thank you Mr. Carroll. These are the exact lenders I have been researching. I believe you are correct for this deal because it's an assumption but the time period left on the lease is more than 15 years(20+ years). I have found properties with investment grade tenants. Some of which have new leases that will commence next year. Please message me with the details and please refer to my post in the marketplace. Thank you for your time and Happy New Year!

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here