What does NNN (triple-net) mean?
A triple-net lease is one where the tenant pays the three big property-level expenses directly: real estate taxes, building insurance, and common-area maintenance (CAM). The landlord receives the base rent without those operating costs. NNN leases simplify lender underwriting — the rent is "net" of those expenses, so DSCR math is cleaner. NN (double-net) excludes CAM from tenant responsibility; gross leases include all three in the rent. STNL retail is usually NNN; office leases vary.
How does tenant credit affect financing?
Tenant credit drives loan pricing more than any other underwriting factor on net-lease and credit-tenant retail/office. An investment-grade tenant (S&P BBB or higher) with a long-term lease gets the tightest pricing — sometimes within 50 bps of multifamily. A franchisee operator or sub-investment-grade tenant gets priced 100–200 bps wider with tighter LTV. The lender is essentially making a lease-as-bond underwriting decision.
What is rollover risk and why does it matter?
Rollover risk is the lender's exposure to lease maturity within the loan term. A 10-year loan on a property where 60% of the rent rolls in years 3–5 carries significant risk that re-leasing won't happen at the same rents — leaving the lender exposed if NOI drops below DSCR thresholds. Lenders prefer ladder-distributed lease maturities (no single year over 20–25% of rent rolling). Sponsors managing rollover proactively (signing renewals before maturity) get better financing.
Can I get non-recourse on a retail or office loan?
Yes, on CMBS or life-insurance-company financing — both are non-recourse with standard "bad-boy" carve-outs. Bank financing is almost always recourse. The non-recourse premium is typically 25–75 bps over recourse pricing. For larger deals ($10M+) and stabilized assets, non-recourse is usually worth the spread; on smaller deals or value-add files, recourse may pencil better.
What is a TI/LC reserve and why does the lender require it?
TI = tenant improvements; LC = leasing commissions. Together, the costs of releasing space when a tenant moves out or renews. Lenders typically require a per-square-foot annual reserve (often $0.25–$1.00/SF on retail, $1.00–$3.00/SF on office) deposited monthly so funds are available when leases expire. For high-rollover properties, lenders may also require an upfront TI/LC deposit at closing.
How is medical office different from general office for financing purposes?
Medical office prices closer to apartment than to general office. Reasons: medical practices rarely move (sticky tenants), demand is recession-resistant (demographic-driven), and rent growth is durable. Hospital-affiliated MOBs with system master leases price tightest. Independent multi-tenant medical with practice-level credit prices wider but still tighter than general office. Lender competition is far higher in MOB than in general office in 2026.
Why is general office so hard to finance in 2026?
Three structural pressures: (1) hybrid-work demand softening reduced average occupancy 10–20% from pre-COVID levels; (2) flight-to-quality drove credit tenants from older buildings to newer Class-A space, widening rent gaps within the same submarket; (3) bank stress on commercial real estate broadly tightened underwriting boxes. Class-A office in growing tier-1 markets with credit tenants still finances. Class-B legacy office in tier-2 markets is largely uneconomic — it either trades at land value or transitions to multifamily/industrial conversion.
What is defeasance and how much does it cost?
Defeasance is the prepayment-penalty structure on most CMBS loans. To pay off the loan early, the borrower buys a portfolio of US Treasuries that produces the same cash flow as the remaining loan payments. The Treasury portfolio is "substituted" for the property as collateral, and the loan is technically still outstanding (now collateralized by Treasuries) until natural maturity. Cost depends on rates: in a rising-rate environment, defeasance can be near-free or even profitable; in a falling-rate environment, defeasance can cost 5–15% of the loan balance. Plan for this structure when taking CMBS — it changes how exit options work.