Case Study: $3.5M Medical NNN Financing in Nashville, TN: Dental Office, 15-Year Absolute NNN, 1031 Exchange

The Property

The subject property is a freestanding dental office building in Nashville, Tennessee, occupied by a multi-location dental service organization on a 15-year absolute NNN lease. The building totals approximately 7,200 square feet on a 0.65-acre pad site in a high-traffic suburban corridor with strong visibility from a major arterial road. The tenant operates 12 locations in the greater Nashville metro and has been in this specific location for nine years, with the new 15-year lease executed in connection with the sale-leaseback structure.

Annual net operating income at acquisition was $287,500, producing a 5.75% going-in capitalization rate on the $5 million purchase price. The lease is absolute triple net: the tenant pays all taxes, insurance, and maintenance including roof and structure. Rent escalations of 1.5% occur annually throughout the primary term. Four five-year renewal options follow the primary term at the then-current rent.

Medical and dental NNN assets have been among the most aggressively acquired property types in the net lease sector over the past three years. Nashville's healthcare employment base, which grew 18% from 2021 to 2025 according to metro labor data, has supported rental rate growth and occupancy stability for medical office users across the market. This dental operator's 12-location footprint in the metro effectively functions as a small enterprise with meaningful enterprise value behind the lease.

The Borrower

The buyer is an experienced private real estate investor completing a 1031 exchange from the sale of a strip retail center in Tennessee. The investor had been in the retail strip center business for 15 years and wanted to transition into a management-free, passive NNN income stream: the classic motivation for retail-to-NNN exchange buyers. This was the investor's second NNN acquisition; the first was a QSR in 2023.

The investor's familiarity with the Nashville market and prior NNN experience made the lender conversation straightforward. The bank did not need to educate the borrower on the product or the risk profile: an advantage that shortens the underwriting timeline and reduces friction during the approval process. No borrower names are published per CLS CRE's privacy policy.

Why Medical NNN Works for Bank Financing

Medical and dental NNN assets occupy a unique position in the STNL lending landscape. They often fall outside the standard investment-grade tenant categories that dominate bank STNL programs (pharmacy, QSR, auto parts, dollar store), but they carry characteristics that make them equally or more attractive from a lender's perspective:

• Tenant stickiness: A dental practice cannot relocate easily. Build-out costs for clinical infrastructure, equipment, and patient databases create a relocation cost that effectively anchors the tenant to the location far longer than any contractual lease term alone. Lenders understand this dynamic and give meaningful credit to it in medical NNN underwriting.
• Essential use: Dental and medical tenants serve needs that do not face e-commerce substitution. The same disruption risk that has pressured retail NNN valuations does not apply to healthcare-adjacent uses. This makes medical NNN cap rates structurally lower over the long term than comparable retail NNN.
• Long absolute leases: Multi-location dental service organizations typically execute 15 to 20 year absolute NNN leases as part of sale-leaseback transactions. This lease length puts the asset well within bank minimum lease term requirements, with 12 to 15 years remaining at acquisition being the strongest range for bank appetite.
• Enterprise guarantee: A 12-location dental operator is not a single-practitioner risk. The personal or entity guarantee behind a multi-location operator is substantially more secure than a guarantee from a sole practitioner or a single-location operator with no diversification.

The Underwriting

• Loan to value: 70% (based on appraised value of $5,000,000)
• DSCR: 1.38x on a 25-year amortization schedule (minimum required: 1.25x)
• Debt yield: 8.2% on the loan amount (strong for medical NNN at this loan size)
• Remaining lease term: 15 years absolute NNN with four renewal options
• Tenant credit: 12-location regional dental service organization; personal guarantee from the operating principal and entity guarantee from the operating company
• Building condition: Seven-year-old building in excellent condition; new HVAC, dental chair infrastructure, and plumbing upgraded by tenant in connection with the lease renewal
• Environmental: Phase I completed; no recognized environmental conditions (dental clinics carry minor chemical exposure risk but no material environmental concerns were identified)
• Rent-to-sales ratio: Not required by the bank at this loan size for an absolute NNN lease, but the borrower provided approximate practice revenue data confirming a healthy coverage ratio

Loan Structure

• Loan amount: $3,500,000
• Interest rate: 7.15% fixed (CMT plus 240 basis points)
• Term: 5-year fixed
• Amortization: 25-year schedule
• Prepayment: Step-down (3-2-1-0 in years 3 through 5)
• Recourse: Full recourse at 70% LTV; non-recourse available at or below 60%
• Origination fee: 1.0%
• Rate lock: 30-day lock from application
• Time to close: 33 days from signed application

Medical NNN vs. QSR and Auto Parts NNN: How Lenders Compare Them

Borrowers often ask whether a medical NNN deal will be treated the same as a QSR or pharmacy deal by a bank. The short answer is: it depends on the tenant profile and the lease structure, but medical NNN can compete on equal or better terms in the right circumstances. Here is how the comparison typically plays out:

• Investment-grade QSR (Burger King, McDonald's): Easiest approval, lowest rate, maximum LTV. Corporate guarantee with Moody's or S&P rating eliminates credit subjectivity.
• Pharmacy (Walgreens, CVS): Similar to QSR. Investment-grade, long leases, known tenant. Strong at any loan size.
• Auto parts (AutoZone, O'Reilly): Investment-grade, consistent underwriting, widely understood by bank credit teams. Requires strong market fundamentals.
• Multi-location medical/dental DSO: Non-rated but evaluated on enterprise size, location count, and revenue. Accepted at most bank STNL programs at $1M to $5M loan sizes. Rates typically 25 to 50bps higher than investment-grade QSR/pharmacy for equivalent LTV.
• Single-practitioner medical: Most restrictive. Limited to 55 to 65% LTV at many banks, shorter lease minimums required, and higher rates reflecting individual credit risk.

What Made This Deal Work

1. Multi-location operator with market density. Twelve Nashville locations gave the lender a regional enterprise picture, not a single-location credit risk. The operator's Nashville-specific density also means the tenant has deep community roots that make departure far less likely than a single-location practice.
2. New 15-year absolute NNN lease. The lease reset executed in connection with the sale-leaseback gave the lender a clean, full-term lease with no near-term rollover concern. A 15-year initial term on an absolute NNN lease is the ideal structure for bank STNL programs.
3. 1031 exchange deadline met. The 33-day close gave the borrower 12 days of buffer against the exchange deadline. Bank STNL programs are specifically designed for the speed that 1031 exchange buyers require.
4. Nashville market strength. Nashville's healthcare employment growth and strong rental fundamentals gave the bank confidence in the exit market. A lender's willingness to hold or sell the collateral at par or above on a 5-year horizon is part of how they evaluate every deal: Nashville checks that box for medical NNN.
5. Clean documentation package. Having the lease abstract, Phase I, survey, and appraisal engagement in place before application compressed the timeline. The bank closed in 33 days because the borrower was organized.

Key Takeaway for Medical NNN Buyers

Medical and dental NNN assets are among the strongest performing property types for 1031 exchange buyers in 2026. The combination of essential-use tenancy, long absolute NNN leases, and the structural relocation barriers built into healthcare real estate makes these assets defensively positioned relative to retail NNN at comparable cap rates.

Bank financing is consistently the best execution path for medical NNN acquisitions in the $1 million to $5 million range. The dedicated STNL bank program CLS CRE accesses prices medical NNN deals at CMT plus 215 to 250 basis points at 65 to 70% LTV for qualified borrowers. CMBS becomes competitive above $5 million when non-recourse is a hard requirement, but below that threshold the bank program offers better economics and faster execution every time.