Finding and analyzing the best "NNN" opportunity

[Beatriz Nahuz]

I am a real estate agent that works with International real estate investors. I am currently building a portofolio of NNN properties to purchase. I have never purchased a nnn property before, I am now getting familiar with things I need to analyze. I wanted to know if there are some key things or ratios that i need to look out for? Numbers of stores? Size of property ? Location? Etc.... Also, are there companies that can do this type review? I have a couple of nnn picked out.... But I need advice on how to pick the best opportunity.

[Joel Owens]

Debt right now is hovering around a 4.6 for CMBS at that level with a 30 year amort. and 10 year term.

The problem I see is you will have you have about 35,000 a month P and I at 5,500,000 at 6.5% interest.

Non-recourse generally have large pre-pay penalties that decreases as the years go by and it gets to maturity.

At 4.5% interest you are at about 28,000 monthly so saving 7,000 a month or 84,000 a year on debt service. Your loan from before might not have been offering interest only for the first 2 years like some other lenders now do on CMBS. Interest only a 4.5% would drop down to about 21,000 monthly the first two years for 14,000 a month savings in debt service but no principal pay down would occur the first two years.

The other component is what LTV your loan balance currently sits at. The refi will generally go up to 75% of current value. Interest only for 75% ltv at 7,500,000 would be around 28,000 a month. So in that situation you could possibly take out 2,000,000 extra in equity if the property appraised and have a lower payment to boot.

6,900,000 at 4.5% at 75% ltv  principal and interest would be about the monthly payment you have now but could pull equity out.

This is very basic and I am not including reserves or other lender placed requirements for escrows. You will have the loan break pre-pay fee and the refi loan costs to analyze if it makes sense to do it.

I run into these for clients when we want to buy a property. Usually we ask the seller to pay the break fee or split it. For the buyer it makes sense to place new 10 year debt while rates are low than wait 2 or 3 years when the loan finally matures and rates are much higher.