Loans for single-tenant net lease property

Decide by the tenant and the lease

Tenant and lease	Best fit	Why
Investment-grade corporate tenant, absolute net (bondable) lease, long term remaining	Credit tenant lease financing	Sized on the lease, amortizes over it, priced off the tenant
Strong tenant, double-net lease (landlord keeps roof or structure)	Life company, CTL with lease enhancement insurance	Lender needs the landlord risk covered
Strong tenant, shorter remaining term	Life company, CMBS conduit, bank	Too little lease left to amortize; lender relies on renewal and dark value
Franchisee or regional operator	Bank, credit union, DSCR loan	Operator financials drive the credit
Ground lease to the tenant (you own the land)	Life company, bank	The tenant’s improvements secure your rent
Tenant owns the building on your ground lease	Leasehold financing on the tenant side	A different loan altogether
Lease expiring soon or tenant leaving	Bridge, bank	Value is the empty building until re-leased

Programs ranked for a net lease property

Rank	Program	Wins when	Loses when
1	Credit tenant lease	Rated tenant, absolute net lease, long term left	Tenant unrated, termination rights, landlord keeps roof and structure
2	Life company	Strong tenant and location, moderate leverage, long fixed rate	Short lease, weak location, small loan
3	Bank	Local or franchise tenants, quick close, light prepayment	Recourse, shorter term
4	CMBS conduit	Non-recourse at moderate leverage, interest-only	Lease ends before or near maturity; defeasance
5	Credit union	Smaller properties, relationship pricing	Size caps
6	DSCR loan	Small properties and fast closings, including 1031 buyers	Higher rate

What lenders read in a net lease

• Who signed the lease. The parent company, a subsidiary, or a franchisee. A guarantee from the parent is worth checking word by word.
• Remaining term against loan term. The lease should run past the loan maturity, ideally with room to refinance. A lease ending a year before maturity is a refinance problem the lender prices today.
• Net or double net. Who pays taxes, insurance, roof, structure, parking lot and casualty restoration. Any landlord obligation is a cost the lender underwrites or wants insured.
• Termination, go-dark and assignment rights. A tenant that can leave, stop operating, or assign the lease to a weaker company changes the credit.
• Rent increases. Flat rent over a long lease loses value to inflation; fixed bumps or CPI increases help the refinance.
• Purchase options and rights of first refusal. Lenders check whether the tenant can buy the property at a price below the loan.
• Dark value and re-tenanting. Is the building generic (a box anyone can use) or purpose-built (a drive-through restaurant, a bank branch)? Purpose-built buildings get a lower dark value.
• Estoppel and SNDA. The tenant confirms the lease terms and agrees to stay if the lender forecloses. No estoppel, no closing.

Sizing examples (illustration)

An illustration, not a quote. A building leased to one tenant at $300,000 a year absolute net, bought for $5,000,000 (a 6.0% cap rate).

A conventional loan under an assumed 65% LTV and 1.25x DSCR, 25-year amortization, illustrative 6.50% rate:

Test	Arithmetic	Loan
LTV	$5,000,000 x 65%	$3,250,000
DSCR	$300,000 / 1.25 = $240,000; / 8.10% constant	$2,962,000
Loan	lower test	$2,962,000 (59% LTV)

A credit tenant lease loan that amortizes fully over the remaining lease, with rent just covering the payment (an assumed 1.00x, at an illustrative 6.25%):

Lease term remaining	Loan the rent fully pays off	LTV
15 years	$2,916,000	58%
20 years	$3,420,000	68%

The lesson: the CTL structure is powerful when there is a long lease left and the rate is low. With 15 years left it sizes about the same as a conventional loan, but the conventional loan leaves a balloon and the CTL loan leaves the property owned free and clear when the lease ends. Model both in the DSCR calculator and the amortization schedule.

Edge cases

• A tenant buying back its own building later. Read the purchase option against the prepayment terms. Yield maintenance or defeasance on a CTL loan can exceed the gain on the sale.
• Medical, dialysis and urgent care tenants. Underwritten like single-tenant retail but with a specialized buildout; see medical office.
• Industrial net lease. Same structure, different dark-value analysis; see industrial and warehouse.
• Portfolios of net lease properties. A blanket loan or a CMBS pool may beat separate loans; tenant concentration is the key risk.

Programs to avoid

• CTL financing on a franchisee lease. The structure depends on a rated tenant.
• CMBS when the lease ends near maturity. Expect a sweep or a reserve that traps the rent.
• Bridge or hard money on a leased, stabilized net lease asset. You pay for flexibility the property does not need.