It isn’t uncommon for a real estate investment client to be perplexed about why the interest rate for one triple net lease property is different from the interest rate for another triple net property. However, differing interest rates among different properties is a common phenomenon. Several variables determine the interest rate for a commercial real estate property, such as:
- location,
- tenant financials,
- number of stores for the tenant and
- lease terms.
VARIABLES AND INTEREST RATES
Because the interest rate for a property represents one of primary motivations to acquire it or avoid buying it, Westwood Net Lease Advisors has decided to give an overview of what variables affect the interest rate for investment properties. With this information, investors will be able to making more educated decisions on their commercial real estate property transactions.
As a general rule, the better the credit rating, location, and financials of the tenant; the better the liquidity/net worth of the investor; and the better the lease guaranty, the more favorable the interest rate will be. Apartment loans typically feature the lowest interest rates, followed by:
- creditworthy tenants,
- national tenants,
- regional tenants,
- gas stations,
- hotels and
- SBA and owner occupied properties.
Over time, the return for these properties differs due to differing cap rates. That is why it is important for brokers and their clients to look at market conditions and be realistic about what the rate for a particular investment property will be. As treasuries and other indexes move constantly, nothing can be guaranteed until the rate is locked in and an investor has a signed commitment letter for the loan.
MONITORING INTEREST RATE VARIABLES
To take advantage of the best rates, Westwood Net Lease Advisors strives to push deals through quickly for our clients. The process of choosing interest rates is a complicated procedure, but we stay in touch with financing sources daily to see what has changed concerning the variables that may affect the final interest rate. The more we know, the more accurately we can inform our clients about the best rate options.
