Non Recourse Retail Loans
Non-recourse loans in the retail sector are usually restricted to single tenant NNN properties. The non-course financing terms (interest rate and duration of loan) are not only determined by the credit worthiness of the borrower. Non-recourse loans are typically limited to very experienced borrowers, with excellent credit, high net worth, and substantial equity in the subject property, providing “overcollateralization “ of the loan. Also, and sometimes more importantly, the terms of the non-recourse loan are determined by the terms of the lease and the credit worthiness of the single tenant.
Interest Rate
The interest rate is largely determined in correlation with the credit rating of the tenant as specified by Standard & Poor’s or Moody’s. Therefore the single tenant must be a publicly traded corporation. The better the credit rating of the tenant, the lower the rate of interest will be on the non-recourse loan, within the parameters of the market rate of interest at that particular point in time.
Term
The non recourse loan is usually directly correlated with the remaining term of the lease of the single tenant. For example, if the single tenant had a lease for 25 years, and there were 22 years remaining on the lease, the non-recourse loan would balloon at the end of the 22 year period. However, should the tenant elect to extend the lease for an additional period of time, the lender is likely to extend the term of the non-recourse loan as well.
Retail Single Tenant Non Recourse Finacing
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