NNN Lease Debt Assumption - Here's the details and questions

[William M.]

Property Details:

Purchase Price: $9,500,000

Annual Rent: $498,804 

Cap Rate: 5.25%

Lease Expiration: 2/28/2038

Lease Type: NNN

Year Built: 2013 

Options: 10, 5-year

Gross Leasable Area: 14,534 SF

Building Class: B

Lot Size: 3.20 AC 

Tenancy: Single 

No. Stories: 1

Assumable debt:

Wells Fargo Loan Balance: $4,728,897 

Interest Rate: 4.5% 

Amortization: 30 years 

Annual Payment: $304,011 

Cash-on-Cash Return: 4.01%

Lease abstract:

Tenant: Walgreens 

Guarantor: Walgreens Boots Alliance, Inc. (NYSE: WBA, S&P: BBB+) 

Lease Structure: Absolute triple-net 

Lease term remaining: 21+ years 

Lease expiration: 2/28/2038 

Options to extend: 10, 5-year options to extend 

Landlord responsibilities: None. The tenant is responsible for all repair and maintenance of the property, including the roof and structure.

Site demographics:

Average Daily Traffic Count (ADT): 23,000 

1-mile Average Annual Household Income (AHHI): $99,969 

POPULATION: 

1-mile radius: 6,095

3-mile radius: 42,886 

5-mile radius: 124,077 

Questions(using the information provided above):

1. How does assuming the debt of commercial properties work in general, and specifically for NNN properties?

2. What requirements may need to be met by the lender and can bringing on an equity/funding/credit partner help close such a deal? 

3. Is there usually a down payment required? How much should I expect?

4. Am I simply assuming the balance on the loan or paying the listed price?

5. Is it possible to do a seller carry back for the down payment?

6. Is it possible to positively leverage(100% financing scenario) such a deal using creative financing(private lender(s), hard money loan, etc.?

Thanks for everyone who helps me this and Merry Christmas to all!

[Joel Owens]

NO

You would put down about 5 million to assume the existing loan. There is no mention of when the loan is due. That is important as pharmacies typically have FLAT RENT during the primary lease term.

There is generally a loan assumption fee and borrower needs to qualify to assume the loan.

Annul rent of 498,804 today is not worth that in 2020,2030 year dollars etc. because of inflation.

Often very heavy pre-pay penalties into the 7 figures to break a loan early like this and put new debt on it. These are often bought for tax shelters or estate planning purposes. Some developers use them for pay down and re-advance features.

What happens if loan comes due and interest rate is then 7% in the market 6 years from now but rent is still flat and the same? Even starting at such a low LTV lender likely on new loan will want more cash. This is why sellers generally sell then and 1031 to something else.

Hard money loan? The property is only cash flowing about 4%. Know any hard money lenders at 4%?

You might want to read up on some material for NNN space to fully understand it. Things you are proposing are not realistic.

Good luck.