All Forum Posts by: Chris Mason

 If I knew that I wouldn't be here, I'd day-trade on that information (stock ticker $MBB, for example, it's an ETF, so it functions as a stock, you can short it, or buy puts, etc) and be a billionaire well prior to Q1 2025!

And any time a journalist or anyone else claims to know, the first question I have for them is: "If you say that you have access to this accurate crystal ball, then why aren't YOU a billionaire?!"

Rather than starting with one lender and going back to the tenants, another approach would be to work with a commercial mortgage broker who will put the full credit package in front of 10 or a dozen lenders, and see what they come back with.

For example, for scenarios like this, I've seen lenders come back and offer a new loan that has a maturity that's coterminous with the lease. Which just means that rather than the new loan maturing in a nice round 5 or 7 years, it will mature in 2 years and 10 months, if that's how long your lease with the current tenant is. And then it might have the option to extend it to a nice round 5 years if/when the current tenant extends. 

I never really know ahead of time which lender might be open to that before putting the full credit package in front of them, and many of them 'in theory' offer it, it's just a matter of exposing the potential transaction to enough credit unions and banks that a few "swipe left," a few "swipe right," and looking at the terms offered by those that swiped right. We don't charge any  up-front fees for this and it shouldn't be necessary, but do watch out for the upfront non-refundable "commitment fee" or "engagement fee."

GL!

I'd suggest narrowing down a bit. Marketing material from commercial brokers in all 50 states, for all sorts of NNN, isn't useful, and you aren't going to really get insights until you narrow your focus a bit.

Starbuck is a nice easy thing to watch b/c they are all over and, since Americans have largely replaced their trans fat addition (McDonalds, Burger King) with a sugary caffeine addition (Starbucks), it's likely going to do well for a few decades. 

A Starbucks building in a suburban nice area in California is going to go for a 5% cap rate, and in Kentucky an otherwise identical building with a NNN Starbucks tenant is at a 6% cap rate. Bam, now I can in fact somewhat speak "in general," and I can say that with a fair degree of confidence BECAUSE I've zoomed into that one thing. Don't ask me about Dutch Brothers or Burger King or Target, as soon as that is in play, my "in general" commentary is right out the window. (If curious, my residential real estate investor clients from 10 years ago [you can find my 10 year old bigger pockets dot com posts :], at the time buying up 2-4 unit properties, a lot of them are now done with the 'human' tenants and want to 1031 into something that is ACTUALLY passive, so yes Starbucks comes up, thus I watch it).

In my case I zoomed all the way into a specific brand (which then allows me to make very sweeping generalizations across an entire state -- but still not the entire country), I'm not suggesting you do that, but SOME of the variables need to be narrowed down, before you can gain any useful insights. 

Without knowing the specific area, etc, a 7% cap rate on NNN is likely somewhere on the higher end of the risk spectrum compared to the 5% that a Starbucks might command. Which is fine, it's just a matter of figuring out what that risk factor is.

For example, are they on year 13 of the 15 year lease? 

If you eyeball how full the parking lot is on historic google street view, has it gone from always packed 10 years ago, to half full 5 years ago, to 1/4 full today? 

If both of those things are true, then you have a higher than average risk of tenant turnover, which is where that cap rate is coming from. If this healthcare facility had one of the big national dialysis companies on year 2 of a 15 year lease, it would likely be chilling at a 5 cap next to Starbucks. 

"What I don't understand is why the tenant agreed to pay close to 2X market comps in rent in price per sqft per year for this facility."

Maybe the landlord paid for the TI in exchange for higher rent. Maybe the tenant improved the property 13 years ago, in exchange for a 15 year lease. Yes, that's a great question, but we don't have the answer, that's for you to dig into.

Yup, confirming that desirable assets in desirable areas are indeed being financed in the 5s with normal bank and credit union loans for commercial real estate. Agency debt is mostly teaser stuff that very few people qualify for, so I'll not mention those rates in this post. 

For most multifamily, I'm seeing on 30 year amortization to boot.

Reminder for the lurkers that this has nothing to do with single family homes, 1-4 unit residential all gets residential mortgage financing, which isn't presently as good as commercial.

Odd world where the 8-unit property has a payment that is less than twice as much as the fourplex, even though it pulls in twice the rents, and has less than twice the maintenance expense (the price of the fourplex is likely to be more than half the price of the 8-unit, and more than 1/5th the price of OP's 20-unit, holding constant location etc, but that's another rant for another day). It's not at all normal that commercial mortgages have lower rates than owner occupied single family homes... we shall see how long that lasts for.

I don't see that you've looked at historical financials. Go back to at least 2019, the last year pre-covid.

If the tool has merit, then build it for yourself, and it will pay for itself on that basis alone.

If it will not pay for itself (& time counts as a cost) when the only customer is yourself, it's probably been done a thousand times, and/or isn't as useful as you think. 

Let's not pretend software widgets are 20 thousand square foot shopping centers...

Happy to take a look for ya. 

Scenario: The investor owns 10 single family homes acquired over the course of the last couple years. Missed out on the great COVID rates, had to take out a mixture of Fannie and DSCR loans to close, with sub-optimal interest rates, maybe in the 7s to 9s. The portfolio of homes would do a lot better if the rates weren't trash, and since they are a bigger pockets member they became aware that you can wrap up a bunch of single family homes into a single commercial mortgage (sometimes called a "Blanket Mortgage"), generally if they are geographically concentrated. Reminder that from the CRE perspective, the following are "single family" homes: condos, single family homes, duplexes, triplexes, and fourplexes. And, while the investor is at it, they may as well do a cash out refinance, or at least they want to know what those numbers look like.

Here is what that financing might look like, along with pros/cons.

From left to right: No prepayment penalty, 3 year prepayment penalty, no prepayment penalty. 

The way to read "5/25, 10 years maturity" is that the rate is fixed for 5 years, the payment is calculated on a 25 year amortization, and there's a balloon payment due at the 10 year mark. 

The 80% LTV option: Obvious pro is the leverage point. This is a local credit union, this would only be an option for an investor that both owns the properties near Austin, Texas, and that personally lives in the area as well. Great news for the local investors, bad news for the California absent landlords (our software catches/filters by property location and borrower primary residence, there might for example be a lender in California that lends nationwide but requires the borrower to live in their 3-county footprint, and every other configuration of that you can imagine). Con is of course this is the highest rate option, however with no prepayment penalty one can re-evaluate their options very soon down the road.

The 70% LTV option: The interest rate is starting to look sexy, the downside is the 20 year amortization, that was in this case the tradeoff to get the leverage point and the rate. It does have a 3 year prepayment penalty, as well. The maturity matching the amortization means no mandatory refinance, in the context of rates more likely to go down than up, that's not a bad thing.

The 60% LTV option: Some folks wouldn't want to compromise on the amortization or the rate, but they might be willing to compromise on the leverage point, which is where this one comes in. In real estate we say "everyone wants the perfect house, at the perfect location, at the perfect price, but you don't get all three, so pick the two that are most important to you," and this is an example of that. Best leverage point, longest amortization, or best rate... pick two.