Triple net financing is focused on properties that only have one tenant. Generally speaking these are tenants that pay all the operating expenses of the property. For example, the tenant would be responsible for real estate taxes, building insurance and maintenance. There are circumstance where this might be modified, i.e. there might be caps on expenses every year. This is set in place to protect the tenant from extreme price increases.
When looking for a loan it is important to focus on some key areas the lender will care about. Here they are:
Since the tenant is the one who is essentially going to be covering the payment, the lender wants to see how strong they are. Things that are important are their sales figures, profit and loss for a trailing year and balance sheet. They want to see how their sales are trending year over year in this location. Are they going higher, or lower? Furthermore, they want to see the profit and loss to see if they are making, or losing, money. Are they profitable? Finally, they want to see how much cash they have, and how many liabilities they have. Can this tenant make it if they have a bad month, or two, in sales, or would they belly up fast?
The location matters, because of re-tenanting risk. What happens if the tenant goes out? Can you easily modify and lease this to another user, or is it special purpose? By special purpose we mean the property only has one particular use, i.e. a car wash. How much traffic goes by this location per day? What other shops are around this site that will be supportive? Is it easy to drive into the site, or do you have to go through a lot of obstacles. Location really matters to lenders.
The lender will be very focused on how strong the lease is. What are they paying every month? Are there bumps each year in the rent? Can they get out of the lease with only a few months notice? Are there any hidden provisions that can hurt the landlord? It is really important to have a lease summary for the lender, so they don’t have to dig through a lot of information.
Now the question is, what terms will the lender offer? This depends on a few things, which are:
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