How to get financing for buying NNN assets in 2023

Understandably, lenders focus on the strength of the NNN lease. Lender due diligence involves tenant profit and losses, the credit grade of the tenant, tenant industry, rent payment, rent escalations, exit clauses, assignment clauses, destruction clauses, lease term etc. Plus, net lease lenders will want to ensure that a net lease property has a great location and also can be easily leased to other types of tenants so that tenancy risk is minimized.

Lenders are immensely concerned about consumer demographics, incomes, foot and vehicle traffic, other co-tenants that support foot and vehicle traffic, and the property’s accessibility from roads. Essentially, the rent that a NNN tenant pays should exceed debt service to the lender (at least 1.25X debt service) – so the lender has to validate that the tenant’s business is financially sound.

Nowadays, to qualify for a NNN commercial loan, investors require a net worth of $1.0 million or more. Net lease investors may also qualify if their annual income is minimum $200K (or $300K if joint income). Investors will need to have liquid cash for a down payment of 25% – 45% of the loan’s total value.

Financing NNN properties will typically involve either a credit union, or a bank, or a private lender like an insurance company or private equity. Broadly, loans tend to carry a lower interest rate on NNN properties with investment grade tenants. Interest rate fluctuations do not immediately affect the NNN market as cap rates tend to lag six months or more behind interest rate changes, which may be good news for cash buyers. Current elevated cap rates and lower asset prices and give cash buyers a serious edge.

Currently, there are all manner of NNN lenders offering competitive interest rates, typically between 5.0–6.5%. While these interest rates are higher than pre-COVID, they are still low enough to amortize a NNN mortgage using rental income and benefit from a sizeable, steady, cash-on-cash return. (When tax impact is included, a 5.00% cap rate converts to a 7.5–8.5% compounded return!)

Structured correctly, a NNN lease property investment using leverage still makes robust sense. But the key is doing the right deal. And to get the “right” deal, we encourage you to call the Triple Net Investment Group to get the right advice in this uncertain time of escalating interest rates. We know market cycles over decades of focused, NNN investing, and can get your money a correct, safe and profitable harbor.

Call Robert Gamzeh at 202-361-3050 for a complimentary consultation.

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