Converting NNN Credit Lease To Bondable Lease

commercial real estate loan

Converting NNN Leases, Nearly 100% Financing

Long term fixed rate loans to finance a commercial real estate investment property supported by a long term lease from an investment grade tenant?  We can help place and structure your loan to find terms to fit your goals. Perhaps you have funds coming from the recent sale of another commercial property.  Or you are in a 1031 exchange.  Or perhaps you would like to put as little down on a property as possible.  When working with our institutional investors, a loan secured by a first mortgage and supported by investment grade tenants can be funded through lenders bond department.  Sometimes better interest rates can be obtained by placing the loan in the bond department and treating the loan like a bond vs. a loan with NNN leases.

Bondable Lease:

Most investors know what NNN financing means, to obtain bond treatment one must have a “Bondable” lease terms.  In most NNN leases the tenant has the option to terminate early should certain events occur.  We often see NNN leases that permit the tenant to terminate the lease early in the event of part or all of the property being condemned. Or if part of the structure suffers a casualty loss (e.g. fire damage).  Specialized insurance products that will protect the lender from being paid off early if the tenant elects to terminate the lease early due to condemnation or casualty loss.  Addressing possible cash flow interruptions converts the transaction from a real estate loan supported to a Bondable loan.  In conclusion, a Bondable lease protects lender from a cash-flow interruption should the tenant exercise its right to terminate.

Residual Value Insurance a/k/a RVI:

When working with real estate investors looking to finance as much as possible we often turn to residual value insurance.  This allows the amortization to extend beyond the remaining lease term. For example, you wish to buy an existing Wal-Mart with 20-years remaining under the primary lease term.  To obtain the most dollars you need a 25-year amortization.  As a result we can arrange for a RVI policy that protects the investor or pays the investor/lender off at lease maturity.   The RVI pays off the balloon balance on the loan.

So, it is possible to take a NNN lease, create a synthetic bondable structure.  This approach allows one to obtain a long term fixed rate, non-recourse loan, at maximum dollars.  You accomplish this by placing the loan with the bond department with one of our institutional lenders.  The lender is focused on the bondable structure they are not as focused on the real estate values.  Therefore, the lender relies on the net cash flow from the lease to service the debt.  The DSCR can be as low as 1.0 to 1.0 with the final loan amount not to exceed the value of the property.

For additional information on investment credit tenant property loans call Mike Caffrey at (913) 402-7077. or email at: mike@caffreyloans.com