All Forum Posts by: Kevin Sellers

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.

Sonic is a good brand and a 53-unit operator indicates a decent sized tenant.  Make sure tenant is required in the lease to provide annual financial statements and store sales for the specific property so you can evaluate tenant financial strength.  Biggest drawback to Sonic properties is the specialty nature of the land improvements.

George - many investors are transitioning to less management intensive real estate investments like the "Property 1" you described.  Multifamily properties are much more management intensive than 2-4 tenant retail properties, even when you hire third party management.  What is the actual population demographics in the 5-mile radius?  Some tertiary markets are OK but it's risky to be investing in tiny towns where re-tenanting and/or re-selling can be challenging.  Cap rate of 6.40% on proforma cash flow sounds very low for a 25% vacant building in a small town.

There are lenders that specialize in providing construction financing for single tenant "build to suit" projects. They have maximum LTC and LTV guidelines but will typically fund a higher percent of the cost as long as you don't exceed the maximum LTV. These lenders will analyze the demographics of the location but the most important variables are the tenant and terms of the lease. If the tenant and lease terms are acceptable, then financing 60% of appraised value should be achievable, even if that loan amount represents a higher percentage of your cost.

I recommend Joel Owens who is a single tenant buyer broker and top contributor in Bigger Pockets forums.  He and I have worked together on several single tenant transactions.

Another option is to sell your 12 properties to one investor as a portfolio.  Far less brain damage than selling off 12 individual properties and you could roll all of the proceeds at once into a 1031 exchange.

Very important to review the financials of the anchor tenant and lease guarantor entity.  The term "corporate guarantee" gets used a lot but the value of the guarantee depends upon the financial strength of the lease guarantor.  The value could be very good or not worth much at all.   I've seen cases where the corporate guarantor is a subsidiary of a subsidiary of the mother company which may or not have a decent balance sheet.  If the financials of the tenant and corporate guarantor are strong, looks like you may have good opportunity!

Important variables for a buyer to consider are (1) strength/quality of the tenant, (2) length of remaining lease term, (3) rent increases (if any) in the primary lease term, (4) entity that guarantees the lease (if applicable) and (4) demographics of the location.  A key consideration is the right of the tenant to assign the lease to another tenant, especially if the original tenant will be relieved of obligation if/when the lease is assigned.

Many of my clients are selling their holdings in CA at low cap rates to purchase single tenant NNN properties in the Midwest and Southeastern U.S. There are excellent financing options for strong tenants with long term leases and decent demographics. We are achieving a spread between the cap rate and loan interest rate of 200+ basis points.

If you are looking for passive income from real estate investment, consider acquiring single tenant properties.  I suggest properties occupied by investment grade public companies or strong franchisees/operators of national brands with 10+ years remaining on the lease contract.  If you want to leverage your cash, you can purchase, say, $5 million in assets with 60% debt.  Loan terms for this transaction structure are excellent and now is a good time to lock in a low 10-year fixed rate on the financing.