NNN Loans
Understanding NNN Loans
Every deal is underwritten on a case by case basis. The following factors are considered when structuring a NNN loan.
DSCR (Debt Service Coverage Ratio)
A key component used to determine the final loan amount is the debt coverage ratio of the property itself. The Debt Service Coverage Ratio is defined as:
Net Operating Income (NOI) / Annual Debt Service.
Net Operating Income is derived from the annual gross income minus all appropriate adjustments for operating expenses and capital reserves. These adjustments are made on a case by case basis when considering the property’s location, lease terms, age, value, & tenant.
Loan to Value
Loan to Value is determined as:
Total Loan Balance / Fair market value (as determined by the appraisal)
Loan to Value rarely exceeds 70% on NNN loans
Credit Worthiness of Tenant
Lenders will evaluate by the credit worthiness of a tenant by reviewing the tenants financial strength, the number of years remaining until lease expiration, and any other relevant information.
Property Evaluation
The characteristics of the property itself are also taken into consideration when underwriting NNN loans. The property’s location, age, appearance, accessibility, & market are the primary factors that will be considered.
Borrower’s Credit Worthiness
In almost all cases the credit worthiness of the borrower will be evaluated. Credit score, Net Worth, Liquidity, and relevant experience all come into play on NNN Loans.
Lender Contact
If you need to speak to a commercial loan officer we recommend speaking with Nick Fitzer of BMC Capital. He can be reached at 206 303 8526 or at nfitzer@bmccapital.com
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