Company Newsletter : March 14, 2011
Financing Options Open Up in 2011 For Walgreen, CVS and Other Investment Grade Credit Transactions.
2011 is giving 1031, Institutional Buyers, Developers and Investors many more financing options than in 2009 and 2010. With the CMBS market coming back to life we have about 5 to 10 different Wall Street CMBS lending partners to choose from that we can offer our clients permanent financing for their Investment Grade transactions for loans over two million. We are still targeting larger credits for these lending sources such as; Walgreens, CVS, Home Depot, Kohls, Lowes, Ahold and other investment grade credit tenants. We will consider Rite Aid transactions in which the store is new at lower leverage levels and where we have strong sponsorship with higher spread.
For larger Net Lease Properties that are investment grade we are offering CMBS financing with 25 to 30 year amortization and a ten year fixed rate loan. This financing offers our clients a Non-Recourse loan with standard carve-outs and a very low fixed rate of 5.00% to 5.60% as of March 14, 2011. This is for a 75% max loan to value with a minimum debt coverage of 120%. Our sweet spot for this type of loan is a loan amount of $3,000,000 to $10,000,000 but we can consider much larger transactions. We most recently surveyed our universe of CMBS Lending sources and found that average spreads over the 10 year swap rate are coming in at 180 to 215 Basis Points over the 10 year swap rate (currently at approximately 3.47% +/- as of March 14, 2011) for Investment grade credit transactions with long term new leases. The main factor that will give a Borrower a tighter spread is lower loan to value. A 50% to 60% LTV will yield our clients a much lower spread at this time. Maximum loan to value that we are seeing the CMBS lender’s offering is 70% to 80% Loan to Value for new stores with a minimum Debt Service Coverage Ratio of 120% and a Debt Yield of about 9.00% to 10.00%. Currently we are seeing loan proceeds being constrained mostly by Debt Yield more than DCR and Loan To Value in most cases.
Life Company Financing
Life companies have also become more active in financing high quality investment grade credit tenant transactions. Currently for Walgreen and CVS we can offer a 5, 10, 15, 25 year fixed rate loan with a 25 year amortization. For a 5 year Life Company fixed rate loan we are seeing a rate range of 5.00% to 5.50%. For a 10 year fixed rate loan we are seeing a rate range of 5.00% to 6.00% and for a 15 to 25 year fixed we are seeing a rate range of 5.625% to 6.375% as of March 14, 2011. Most of our Life Company lender’s are offering maximum Loan To Values of 70% to 75% with a minimum 120% Debt Service Coverage Ratio. Also some of the Life Companies are putting in cap rate floors. Non-Recourse varies from 100% non-recourse with standard carve-outs to partial to full recourse depending on the loan to value, sponsorship for the loan, length of lease, quality of the location and other factors. Most Borrowers enjoy Life Company loans since they are non securitized in most cases and legal is not as cumbersome than CMBS loans.
Banks have also become much more aggressive and we are seeing mostly 5 year fixed rate loans in the 5.00% to 6.00% range depending on which bank is considering the transaction. Banks in general are offering a 25 to 30 year amortization. Non-Recourse will depend on loan to value, sponsorship for the loan, length of the primary lease remaining and quality of the location. We are seeing loan to value maximums for banks in the 70% to 80% range in most cases. Most Borrowers prefer banks that do their own servicing in house and have less legal to deal with than CMBS Lender’s and Life Company Lender’s. Although some banks we have dealt with most recently have become much more strict in their conditions to underwrite and close loans due to political pressures.
Smaller Net Lease
We are still considering smaller Net Lease transactions for new Jack In The Box, Advance Auto, AutoZone, Dollar General, Family Dollar and other transactions. These type of transactions are best suited for our regional and small banks and rates seem to be anywhere between 5.00% to 6.00% fixed for 5/7 or 10 Years. Max LTV is anywhere between 65% to 75% with a minimum DCR of 120% to 130%. Normally we can offer our clients a 25 to 30 year amortization for these transactions.
We are still offering CTL Financing For Walgreen, CVS and other Investment Grade Credit. Max LTV for CTL loans is anywhere between 80% to 100% depending if there is abatement rights for causality and condemnation in the lease. Minimum Debt Service Coverage Ratio is between 100% to 101% and normally our CTL Lenders will underwrite $250/Month for a trustee fee. Current pricing is between 5.90% to 6.50% depending on the quality of the tenants credit rating. Normally these loans are coterminous with the remaining lease term limiting balloon risk. Buyers like these loans for the extra leverage they offer. Although the Buyer / Borrower will normally reap less cash flow or no cash flow in some cases.
This is an excellent time to take advantage of the credit markets if you have been putting off a loan for a Net Lease transaction. We promises to yield you and your clients the most competitive and aggressive quote possible and to process your loan in a timely, efficient and effective manner. If you would like to discuss a loan with us contact us today at (760) 479-0800 and our email address is: nnn at marabellafinance dot com. For up to the minute pricing call or text us at (760)803-6464.
Christian S. Marabella
Phone: (760) 479-0800
24/7 Cell: (760) 803-6464