The Truth About 100% LTV Credit Tenant Lease (CTL) Lending

As credit tenant lease bankers we often get questions regarding the possibility of 100% financing for single tenant, triple net (NNN) properties.

Is 100% CTL financing possible?

The answer is yes, it’s possible but…

Like most CTL bankers we place no restrictions on loan-to-value (LTV) nor do we restrict loan-to-cost (LTC) on CTL construction loans. So, in theory, it is possible to secure a 100% leveraged CTL loan.

But please consider the following. While we don’t limit loan balances due to LTV, we do have strict debt-service-coverage ratio (DSCR) criteria. Our firm requires at least a 1x DSCR and we may require as-much-as 1.05x depending on the final deal structure. So the rent you collect must cover the mortgage payment. We will lend up to 100% of the value (lease fee valuation) but we won’t write you a loan with monthly mortgage payments bigger than the monthly rent.

Further, CTL loans are generally self amortizing loans with terms coterminous with the term of the lease. So the shorter the lease term, the shorter the amortization schedule and the lower the loan balance.

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Also, when buying a net lease property investors must keep in mind the fact that the seller has likely already considered the option of refinance before deciding to sell. No one will sell you a NNN or NN building for the same amount they can borrow. In-other-words if you can borrow a million dollars from me to buy a building the current owner can also borrow the same one million in a refi. They won’t go through the hassle and expense of selling unless they can earn a premium.

So, while it is very true that there are no LTV restrictions on CTL loans, new investors should not assume that they can buy quality net leased assets without a fairly significant capital commitment.

Net lease real estate is an excellent form of fixed income investing and CTL is an excellent capital solution for net lease investors but, there are no free lunches in the commercial real estate industry. Those who believe otherwise will inevitability be disappointed. 

The author of this post, Vincent Remealto, is an analyst for MasterPlan Capital LLC. Feel free to contact him with questions about CTL or other aspects of commercial real estate finance.

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One Response to “The Truth About 100% LTV Credit Tenant Lease (CTL) Lending”

  1. The Truth About 100% LTV Credit Tenant Lease (CTL) Lending … | Home loan interest rate Says:

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