Does anyone specialize in NNN retail sites?
Have a client looking for 8% yields; they're packaging these and selling as products to investors overseas. We specialize in most MF classes and have a stable of sponsors we use. I want to help the client move into other areas that could offer more yield but I have no experience in this space.
Does anyone have a good source that has a primer on how they work, risks, operating nuances, lender appetite, etc?
I have the email blasts from brokers, and some look pretty good... 7 year NNN leases on dollar stores and banks at 7 caps. My immediate thought is that with leverage you can get these to 8 or 9% yields, but I'm concerned there is much i dont know (lenders leverage and interest rates, although leases are 7 years are there ways they can get out even if they're corps with strong balance sheets, do you typically UW the balance sheet, how do you underwrite BS/tenant, etc).
Any color would be great. Thanks!
In my CMBS financing world, we see tons of single tenant NNN properties in retail and industrial. Its all about the tenant. How much money have they invested in their space? are they sticky, is surrounding real estate cheap that they can move at LED, is the location mission critical, do they have strong sales PSF at the location and how does it compare to the national average, what are the TI/LC costs and downtime in the market, tenant financials are important , this is essentially corporate banking more than res estate lending, so we look at metrics like debt to EBITDA, fixed charge coverage ratio, we would like 12-18 months sweeps with ongoing TI/LC reserves. If tenant is IG rated, we can average rents through the earlier of LED or loan maturity so that we can underwrite a higher NCF, if the IG rated tenant has a LED extending 3 years more than loan maturity, Fitch will give excellent treatment so we can waive ongoing TI/LC's reserves and increase proceeds and leverage. We dont typically lend at 75% LTV like we used to in the 1.0 days even if the tenant is IG rated. We are at 70% LTV with no I/O usually or 65% LTV with some I/O and 60% LTV with full I/O for high quality tenants.