Query about financing a compact triple web home – Score: 4

5 thoughts on “Query about financing a compact triple web home – Score: 4”

  1. Tough to say…it really depends on the bank and the borrower.  A lot of the big banks aren’t lending on certain properties currently due to COVID which puts you into the smaller, local/regional banks.  I wouldn’t assume a lender would give you more than 70% LTV and the loan will most likely be recourse which brings your income into the equation and whether the bank can get on board with you making payments.  You will fill out a PFS (Personal Financial Statement), and they will analyze all of your assets and liabilities to determine the risk of you as a borrower.  Having a relationship with a bank goes a long way.

  2. This small loan should be shopped to a small community bank in the City. And by a small bank, I mean approach at least three.

    The lease term might be a problem for some lenders but everything is negotiable. The type of property and your experience will be mitigated in part by the fact that you will be more of a passive landlord with the NNN lease in place. The longevity of the business is a plus also.

    However, you really need to line up the money before given that it is retail. I don’t see many lenders even non-sophisticated lenders feeling ok with less than 30%.

  3. One unbelievably important factor when underwriting CRE loans is the secondary source of repayment. In other words, can the property owner cover the loan payments from other revenue streams if things get wonky with the tenant?

    If the answer is no, and things do get wonky with the tenant, here’s what actually happens at the bank when a property is foreclosed on:

    1. Just simply filing the paperwork to foreclose is an expensive, annoying, and an unbelievably time consuming endeavor.

    2. Banks don’t operate like pawnshops. Trust me, the absolute last thing we want is your property. Period. Doesn’t matter if the bank is ABC community bank in your neighborhood or Bank of America. I’ve worked at both. We don’t want your property. Period.

    3. A triple net property would most likely be foreclosed due to the tenant being unable to pay rent, which makes the NNN issue a moot point.

  4. A lot of moving pieces in your post/question.

    Relationships with lenders always matter. A lot. The longer-term it is, the more deals you’ve done with them, etc. then the more negotiable all these things are…LTV, LTV without PG, rate, amortization schedule, etc. Same holds for commercial mortgage brokers btw, i.e. the more you’ve done with them, the better they can generally perform taking your situation to market and having lenders compete for your business.

    Tough to get more specific because every submarket and asset type is different. Sometimes very different. Is this urban core? Suburban? Growing/thriving city? Or shrinking metro area? Is this office? Retail? Medical? Single tenant or multi? What are the lease terms? Cap rate at purchase price? Any capex on the horizon not covered by the lease(s)? Any vacancies?

    Sorry to answer your question with lots of questions.

    All that said, it’s certainly possible that you could get financing for the property with 30-40% down and no PG, if the lease structure and creditworthiness of the tenant check out per the underwriting.

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