thoughts on NNN lease property

[Marylynn B.]

Hey everyone, I would love some input on a property I am considering.  This is preliminary info so all the details are not in but would love your thoughts on first glance.  National company, BBB- rating.   National retailer developing next door with strong sales.  My concerns are:

The demographics only predict a 2% increase in population for the area.

5 years left on the end of the lease.  Option to renew with a 5.9% increase.

scenario 5/25
Purchase Price: $800,000
Equity: $240,000
Debt: $560,000
Interest Rate: 4.5%
Fixed: 5 years
Amortization: 25 years
NOI: $60,000
Debt Service: $37,352
Cash Flow: $22,648
Cash on Cash Return: 9.4%
Cash on Cash Plus Prinicpal Paydown year 1: $35,053
CoC+ PP return: 14.6%
Debt at the end of 5 years: $492,004

Let me know your thoughts.  :)

[Mark Creason]

Originally posted by @Marylynn B.:

 Yea that is some of my concerns too.  I am actually speaking to the lender today who had already approved it at 3.5%?? I find it hard to believe myself and share the same concerns and questions.  How common are non-recourse loans these days in triple net leases? That obviously is a huge factor.  

Have you signed a loan application with the lender yet?  I find it interesting you say they approved the loan.  Our firm would state that we could consider the loan and we would do a loan application based on verifying terms of the property.  I would be concerned with the short length of lease that is left.  I would also recommend not paying any upfront commission fees at time of loan application.  You will have to pay for third party reports, but if the lender asks for their fee upfront, and it is non-refundable, I would be willing to guess that they will never close the loan.  I had a borrower last year who paid a non-refundable 6,500 deposit on a great teaser rate.  That firm did not close and kept his 6,500.  We did end up closing on the loan which was 22 million.  I believe some BBB tenants have more intrinsic value.  I would prefer a Walgreens over Dollar General , since Walgreen's are usually in better locations, as an example.

Mark