Loan Advice for First Commercial Property (NNN)

5 Replies

I've been investing in SFH for the past 10 years and recently got an offer accepted on my first commercial property. It's a NNN in Louisiana.

From lenders we have spoke with we have only been offered 5 year fixed loans that move to variable. My question is, do any lenders provide fully fixed loans on commercial properties? Is it possible to do an SBA loan?

@Carrie Giordano - from my limited experience (1 NNN deal and working on #2) 5 year terms on commercial loans is typical with amortizations of 20-30 years. You might find some lenders willing to go up to 10 years but I have not talked to any lenders that will lend longer than the lease term. I am sure the more money you are putting down helps open up the options available.

Also, from my understanding, SBA loans are for owner occupants only.

It would be helpful to know your purchase price and type of tenants. 7&10yrs are available but it just depends. expect max LTV at 65-75%.

I review about 1,000 a week. What financing is a available depends on tons of factors.

If loan is small under 1 million most commercial NNN lenders won't touch it as too small for the effort involved to process and fund it.

Demographics comes into play with population levels in 1,3,5 mile radius, crime levels, income levels.

Then you get into lease structure of primary term and tenant type (mom and pop, small franchisee, large franchisee, large private company non rated, national tenant credit rated BBB- or better).

Your risk exposure and viability of the investment is based on your goals and current liquidity and net worth positions along with age in life. If 5 year fixed loan moves to variable for years 6 to 10 try to get a CAP on it where if in the 3's or 4's now it caps out at 6.0 max. That way you can model out 10 years for worst case cash flow expectations if the tenant pays and stay and does not go dark. This is assuming you have a 10 year primary term lease or longer.

Louisiana is just as not that strong of a market as other states. It ranks way down on the desirability list for investment. If you do not have a deep knowledge and understanding of this space you could be putting a lot of your capital at risk. I do have lenders for example on Walgreens that give 10 year fixed rate loans with only 6 years remaining on the lease.

There is a long discussion about debt with NNN that I cannot cover on this post. You need to find a commercial NNN specialist broker or at the very least a commercial retail attorney. If you are going it alone without the knowledge that is very dangerous.

Carrie - I am a commercial mortgage broker specializing in STNL properties nationwide.  For most of my transactions, I am arranging financing with 10-year fixed rates.  But of course, loan terms heavily depend upon the tenant, remaining lease term and location/demographics.  


Your offer of only 5 year loan terms most likely has to do with one or a combination of these factors: 

1) financial strength of tenant(s); 

2) strength of location; 

3) remaining lease term and any other  lease factors that may strengthen or weaken the lease. For example: an early tenant “kick-out” clause the tenant may have would weaken the lease.

Personally, we've financed multiple NNN and NN properties this years. We've been offered a myriad of loan term ranging from 5-10 years. Again, the offers depend on the above factors I mentioned & probably some I neglected to mention in this post. I will say, as Joel mentioned, the loan term you ultimately choose depends on your goals. For example- If you're adding value & plan to do a cash-out refinance at your earliest opportunity, it most likely isn't worth paying a higher interest rate for a 10 year term. Your focus might be more on minimizing initial loan fees, prepay penalties, etc.
Best wishes in your investing endeavors!