Case Study: $8.4M CMBS Financing for an 8-Unit Dollar General NNN Portfolio Across Five Midwest States

The Portfolio

The collateral consists of eight freestanding Dollar General stores spread across five Midwest states: Ohio, Indiana, Kentucky, Tennessee, and Illinois. Each building averages approximately 9,100 square feet on a freestanding pad site in a small-to-mid-size suburban market. All eight locations are occupied by Dollar General Corporation under absolute triple net leases with investment-grade corporate guarantee (Dollar General carries a BBB credit rating from S&P).

Total portfolio appraised value was $12 million, producing a weighted average going-in capitalization rate of 6.10% on aggregate net operating income of approximately $732,000. Weighted average remaining lease term across the portfolio was 8 years at acquisition, with 5-year renewal options remaining. Rent escalations of 10% occur at each renewal option.

The Borrower

The borrower is an institutional real estate syndicator completing a 1031 exchange from the sale of a net-leased industrial building in the Southeast. The syndicator had equity partners with an explicit non-recourse requirement: a standard condition in institutional syndication structures: which drove the decision to pursue CMBS rather than bank financing. No borrower name or identifying details are published per CLS CRE's privacy policy.

Why CMBS Beat Bank Financing for This Portfolio

Bank lenders were evaluated first. The result was consistent: no regional or community bank was willing to finance a multi-state portfolio of small-market dollar stores on a non-recourse basis at competitive pricing. Several factors made CMBS the clear winner:

• Non-recourse was non-negotiable. The equity structure required it. CMBS conduits routinely offer non-recourse at 65 to 70% LTV for investment-grade NNN collateral. Bank programs in this size range do not.
• Multi-state cross-collateral. Most bank lenders restrict their footprint to one or two states. A portfolio spanning five states eliminates most regional and community banks from consideration. CMBS conduits are national capital markets products with no geographic limitations.
• Small-market collateral. Dollar General stores in secondary and tertiary Midwest markets are difficult for bank credit committees to approve: particularly small-market Ohio and Indiana locations. CMBS underwriters focus on the lease, the tenant credit, and the cash flow rather than market liquidity.
• Portfolio aggregation produced a competitive loan size. At $8.4 million, this loan size is solidly within the CMBS conduit sweet spot for NNN portfolios. The conduit priced the loan competitively at 6.25% 10-year fixed, which was inside where most bank programs would have landed on a recourse basis.

The Underwriting

• Number of properties: 8 freestanding Dollar General stores
• Total NOI: $732,000 (aggregate across 8 leases)
• Weighted average cap rate: 6.10%
• Loan to value: 70% (portfolio aggregate)
• DSCR: 1.38x on a 30-year amortization at 6.25%
• Tenant credit: Dollar General Corporation, investment-grade (S&P BBB)
• Remaining lease term: 8-year weighted average; all leases extend beyond the 10-year loan maturity with renewal options
• States: OH, IN, KY, TN, IL (5 states, cross-collateralized)

Loan Structure

• Loan amount: $8,400,000
• Interest rate: 6.25% fixed
• Term: 10-year CMBS conduit
• Amortization: 30-year schedule
• Prepayment: Yield maintenance through the open period (last 3 months)
• Recourse: Non-recourse (with standard bad-boy carve-outs)
• Collateral: Cross-collateralized and cross-defaulted across all 8 properties
• Origination fee: 1.0%
• Time to close: 52 days from signed application

What Made This Deal Work

1. Investment-grade tenancy is the foundation. Dollar General's BBB credit rating is the reason CMBS conduits will finance small-market, secondary-location collateral that would never clear a bank credit committee. The tenant's credit substitutes for market liquidity.
2. Portfolio aggregation unlocked the right capital source. Eight individual $1.05 million loans on Dollar General stores in rural Ohio and Indiana would have been impossible to place at competitive terms. Aggregated as an $8.4 million portfolio, the deal fit squarely into a CMBS conduit program.
3. 1031 exchange deadline managed. The 52-day close delivered the replacement property well within the 180-day close window. CMBS closes in 45 to 60 days for well-organized deals: competitive with the life company and faster than many multi-property bank processes.
4. Non-recourse matched the equity structure. Institutional syndicators cannot accept recourse debt without explicit equity partner approval, which most would not grant. CMBS was the only path that preserved the required non-recourse structure at 70% LTV.
5. Cap rate provided adequate debt yield. At a 6.10% cap rate and 70% LTV, the debt yield on this loan was approximately 8.7%: above the CMBS minimum of approximately 7.5 to 8.0% for NNN collateral at this size. The higher cap rates available in Midwest secondary markets compared to coastal markets actually helped the CMBS underwriting.

Key Takeaway for NNN Portfolio Investors

For multi-state dollar store portfolios and similar NNN acquisitions in the $7 million to $20 million range, CMBS conduit is often the only viable path to non-recourse institutional financing. Bank lenders will not cross state lines for secondary market NNN collateral at scale. Life companies look for larger portfolios or higher-quality markets. CMBS conduits underwrite the lease and the tenant credit: location is secondary when the tenant is investment-grade.

If you are acquiring or refinancing a NNN portfolio with multiple states, a non-recourse requirement, or secondary market locations, contact CLS CRE before assuming bank execution is available. We will tell you in 24 hours which execution path makes sense and what it will cost.