Newbie: NNN property valuation??

[Robin Halleck]

Hi folks!

I'm just starting out in the world of CRE. This is an awesome forum, and I've been trying to absorb as much as I can. Hopefully one day I can graduate from being an absorber to a contributor :)

I'm looking at a highly rated corporate NNN leases, and I'm getting stuck on trying to figure out how to value these properties in preparation to make an offer.

Are there general tips/methods for valuing properties to arrive at a purchase price? I'm leaning toward some sort of cash flow valuation, but it seems that most people use some sort of relative/comp valuation.

I ran some numbers for a property priced at $1 MM with a cap rate of 5.1% and new 10 year lease (no lease increase for duration). The bank says I need a LTV <= 75% and a DSCR of >= 125%. Assuming a 4.75% interest rate (25-year amortization), I get a DSCR of 115%. Does it make sense to put more money down (say to 30%) to get the DSCR to 125%? To me, it seems that it would equate to paying a premium for the property, but my broker says that this is the premium that I need to pay for a corporate NNN. Is this a valid argument?

I'm also trying to wrap my mind around what the 'terminal' value would be (i.e., what I could realistically sell this for down the line). I understand that as the lease term gets shorter, the cap rate should increase since there's probably more 'risk' that the tenant leaves -- meaning that the price will decrease. Is this the way to think about it? And if it is then how can I get a more quantitative idea of what the impact would be? I don't need a specific number but just a ballpark idea. Is this something that I can try to incorporate into my valuation of the property? And if so, how?

I appreciate any responses in advance!

Robin