Interest Rates – Why NNN Investments
differ for each property

By: Shawn Givens-BMC Capital

You will find that I reference phone calls frequently in my articles. To me, they represent real situations with real questions, from clients. No doubt the same questions are on the minds of many investors interested in acquiring NNN investments and other commercial real estate sectors. I hung up the phone yesterday with a client who was angry that the rate I quoted him on a credit tenant triple net lease drug store was different than the rate for a single tenant NNN restaurant he was looking at. I explained to him that this was a common occurrence and interest rates on every NNN investment are affected by many variables (location, tenant strength/financials, number of stores, buyer strength, lease term, lease, direction of the wind at noon, etc.). I reminded him that the cap rate he had on the NNN restaurant was much higher than on the national tenant. As a result, the returns were not affected by the higher rate as the increased cap rate offset the higher interest rate. The call ended well since we now have the drug store under contract and we are moving forward with his loan approval.

I wanted to put together an overview for clients regarding what variables affect the rates one can expect on various NNN investments. My hope is that this information will assist investors in making more educated decisions on their commercial real estate transactions. As a general rule, the better the credit, location, tenant financials, buyer liquidity/net worth and lease guaranty, the more favorable the rate will be. Typically, apartment loans feature the lowest rates, followed closely by credit tenants, then national tenants, regional tenants, gas stations, hotels, SBA and owner occupied and at the end of the rate spectrum which are hard money loans. Obviously, returns will rise or fall on these NNN investments because of the differing cap rates. Do not fall into the bait and switch trap that so many lenders and mortgage brokers are famous for. There was a time several years ago that I would get underbid on about one out of every ten quotes given to a client because the broker was quoting them residential rates. I informed the client that the competing rate was so far below the market and they would be re-traded once they sent in their deposit money. Interestingly, they came back about two to three weeks later, like clockwork, saying the rate was not realistic and the broker couldn’t deliver on their NNN investment loan.

I inform my clients upfront that the rates I am going to quote will be very realistic and based on the market that day. However, as treasuries and other indexes move constantly, nothing can be guaranteed until the rate is locked and we have a signed commitment letter for their loan. That is why I strive to push deals through quickly for clients, in order to take advantage of the best rates possible which in turn will give my clients the best possible returns on their NNN investments. You’ll find that I do enjoy keeping things lighthearted, but all joking aside, the process of choosing rates is a very complicated procedure. I stay in touch with the financing sources daily to see what has changed in regard to one of the variables that may affect the final rate (cost of funds, treasuries, market fluctuations and prime rate to name just a few of the plethora of potential variables). The more I know, the more accurately I will be able to pass the best possible rate on to the client

This is a brief, generalized article that should be very informative to individuals with questions about how interest rates differ with project type and what to look for. If you have more in-depth questions or would like to discuss any financing issues relating to a potential NNN investment, please don’t hesitate to contact me at one of the numbers below.

Happy buying! I’m looking forward to working with you to secure financing on next NNN investment property.

About the author: Shawn Givens is Vice President of BMC Capital Headquartered in Dallas, TX.   He’s been a dominate force in the commercial finance industry since the start of his career and is considered an expert commercial lending.  While working on over $600MM in financing in the last few years, Mr. Givens has become extremely well known and trusted by the Real Estate community and is featured on several websites and the lender of choice for commercial Real Estate Financing nationwide.  For more information regarding lending on your asset please call Shawn at (214) 432-1069 or his cell at (214) 274-1069.