What are typical financing terms when purchasing a single tenant building?

[Andrew Lerner]

What are typical financing terms when purchasing a single tenant building?

[Joel Owens]

There aren't.

Depends on credit of tenant, strength of borrower, primary years guaranteed left on the lease, strength of location for median income, number of houses, population levels in 5 mile radius, area political philosophies, level of crime.

About 20 years in the NNN space as a principal broker and investor.

Right now about the best rate is mid 5's with 25 year amortization for investment grade credit tenant and strong location with about 40% down.

Lots of my clients are waiting for 1031 money volume to reduce over next few months and interest rates to stabilize. That can make sub 4 million price range go from current 50 basis point spread between debt and cap rate average to 100 to 150 spread which is what buyers like to do deals.

Sure there are higher cap rates for junk tenants that are 6.5 cap but interest rate not 5.5 it's 6.3. The name of the game is the spread. 1031 buyers looking at millions in tax penalties for failed exchanges can put 50% down for 3 to 4% cash on cash return before mortgage paydown and then get little to no-prepay penalty on the loan and refi in a few years when rates drop some. By then likely rental increases and lower interest rate increase the 50 basis point spread to 100 to 150 and they defer the taxes.

Cash buyer or buyer some down cash using debt non-1031 doesn't like 3% cash on cash return when bank paying 4.5 to 5% to stay liquid month to month for return. They would rather wait for higher cap rate to deploy the cash. I think around August it will get crazy busy as fed will be scared to raise rates anymore and seller will have ( marked to market ) selling for higher cap rates and the sellers testing the waters hoping for a 1031 buyer to overpay will be long gone.

[Brock Mogensen]

Depends on factors such as lease term, tenant strength, location, price/sq ft. But with a long term lease strong tenant in place, you can usually get 75% LTV, 5 year term, 25 year AM. Short term leases usually scare banks and requires you to get creative.

[John McKee]

Last deal I did was 33% down at 5.99% 5 year loan with an adjustment in year 5. That was back in December.  Total 10 Years and a 25 year amortization. 8 years was left on the lease and tenant was national.  That same rate now is about 6.7. It really depends on the bank sometimes and they also have to factor in your borrowing strength, experience, and the banks risk tolerance.  Ideally you want your cap rate and your interest rate to be about 1% apart for traditional leverage.  Meaning your cap rate is 1% higher than your interest rate.  Otherwise you have to bury more cash into the property.  

[Andrew Lerner]

Quote from @Joel Owens:

There aren't.

Depends on credit of tenant, strength of borrower, primary years guaranteed left on the lease, strength of location for median income, number of houses, population levels in 5 mile radius, area political philosophies, level of crime.

About 20 years in the NNN space as a principal broker and investor.

Right now about the best rate is mid 5's with 25 year amortization for investment grade credit tenant and strong location with about 40% down.

Lots of my clients are waiting for 1031 money volume to reduce over next few months and interest rates to stabilize. That can make sub 4 million price range go from current 50 basis point spread between debt and cap rate average to 100 to 150 spread which is what buyers like to do deals.

Sure there are higher cap rates for junk tenants that are 6.5 cap but interest rate not 5.5 it's 6.3. The name of the game is the spread. 1031 buyers looking at millions in tax penalties for failed exchanges can put 50% down for 3 to 4% cash on cash return before mortgage paydown and then get little to no-prepay penalty on the loan and refi in a few years when rates drop some. By then likely rental increases and lower interest rate increase the 50 basis point spread to 100 to 150 and they defer the taxes.

Cash buyer or buyer some down cash using debt non-1031 doesn't like 3% cash on cash return when bank paying 4.5 to 5% to stay liquid month to month for return. They would rather wait for higher cap rate to deploy the cash. I think around August it will get crazy busy as fed will be scared to raise rates anymore and seller will have ( marked to market ) selling for higher cap rates and the sellers testing the waters hoping for a 1031 buyer to overpay will be long gone.

 This was extremely helpful--thank you for taking the time to write out all this in detail.  Definitely makes sense--just saw an article on loopnet with similar thoughts.  Appreciate it!

[Kevin Sellers]

Some lenders will only finance properties with investment grade tenants.  Other lenders are willing to also consider private companies and franchisees with national brand names.  The financing terms are typically better for the investment grade tenant properties.  Some lenders have certain tenants they really like and will offer special terms for properties with those tenants that have mid to long term remaining lease terms.  Lenders are kind of all over the place now and many have significantly changed their underwriting and pricing.  I maintain constant contact with the 10-12 lenders with whom I actively place debt financing on single tenant and multitenant properties.

[Cody J Leivas]

Most Loan Stabilized Loan Quotes:

Rate: around 2.50% + 5 year treasury 

Term: 5 years (if lease term is shorter than it will be shorter)

Amo: 25 years

LTV: 60% - 75% (DSCR 1.25 - 1.50 will determine the LTV)

[Ronald Rohde]

Quote from @Andrew Lerner:

What are typical financing terms when purchasing a single tenant building?

Is it an absolute net lease or regular NNN? That matters a lot