All Forum Posts by: Dushyant Ravi

I frequently see discussions on here surrounding single tenant retail tenants such as Walgreens, Dollar General, Family Dollar etc. As a CMBS lender, I often see single tenant retail projects come across my desk as those can be good candidates for securitization. I wanted to share how we would underwrite investment grade tenants vs non investment grade tenants.

CMBS underwriting is dictated by guidelines put forth by rating agencies like Fitch, S&P and Moody's. Per Fitch guidelines, when you have an investment grade tenant (credit rated BBB- or higher) you can average rents through the lease term or until loan maturity whichever comes earlier. For example, if a Stop & Shop's in place rents are $15/SF but you have annual escalations by 2% till 2026 and loan maturity is in 2029, when I underwrite the rents for Stop & Shop in order to determine whether the project is a good candidate for securitization, I have the liberty to not use the in place rent of $15/SF but use the average rents through 2026. This will result in a higher Fitch NCF and Fitch DSCR. The Fitch DSCR (which is equivalent to a stressed DSCR) is one of the main drivers that determine whether a project is a good candidate for securitization. It affects pricing, proceeds and numerous other loan terms.

Secondly, when you have a IG tenant and when the LED is 3 years beyond loan maturity, Fitch will underwrite 5% vacancy (as opposed to the usual 10% minimum vacancy) and will not underwrite any TI & LC's. This will also increase the Fitch NCF and Fitch DSCR.

The above rating agency guidelines also applies to office and industrial projects . However, it is very important to have the IG entity on the lease or if you have a subsidiary of a IG entity as a tenant- you should have the IG parent company's name on the lease or provide lease guarantees. 

Hope the above information helps. Most CMBS products allow you to get a 10 year fixed rate loan, but knowing the above nuances will allow you to get the best possible rate and terms. Let me know if you have any CMBS questions.

What is the product that you have mostly used for far? 3-5 year floating rate/recourse?

Hi Efrain, 

I am a commercial real estate banker. The sales broker could potentially get you historical operating statements or at the very least atleast a T-12, so that that you dont have to underwrite based on just proforma. You want to atleast know the historical occupancy, so feel free to ask the sales broker for any historical operating information. 

And side note- you mentioned you were looking to buy and hold. I focus on cmbs lending and securitzation, so 10 year fixed rate non recourse loans are my main product type and they are popular amongst long term hold buyers.  Feel free to use me as a resource, happy to help in any way I can. 

What are typically the minimum 4+ unitloan amounts for FHA?