Case Study: $540K NNN Restaurant Financing — Route 66 Corridor, New Mexico

The Property

The subject property is a freestanding quick service restaurant located along the Route 66 corridor in Gallup, New Mexico. Gallup serves as a regional hub for retail, healthcare, and tourism in northwestern New Mexico, drawing steady visitor activity from nearby attractions including Red Rock Park, the Navajo Nation, and the Zuni Pueblo. The property benefits from strong visibility and accessibility in a high-traffic commercial corridor that serves both local residents and transient travelers on one of the country's most recognized highway corridors.

The asset was structured as a sale-leaseback. The corporate tenant signed a new 15-year triple net (NNN) lease with four 5-year renewal options at closing. The lease is fully corporate-guaranteed with built-in rent escalations. Annual net operating income at close was $81,510, establishing a 4.88% going-in cap rate on the $1,672,000 purchase price.

The Borrower

The borrower is an experienced private real estate investor with a stabilized real estate portfolio and liquidity sufficient to satisfy lender reserves. The deal was structured as a single asset entity acquisition. No borrower name or personal identifying details are published per CLS CRE's privacy policy.

Why Bank Financing Beat CMBS on This Deal

The loan amount of $540,000 put this deal squarely in territory where CMBS execution is difficult to justify. CMBS conduits carry fixed securitization costs that compress margins on small loans. The pricing advantage that CMBS offers on larger deals ($10 million and above) largely disappears below $5 million, and virtually disappears below $2 million. For this deal, CMBS would have delivered:

• A longer closing timeline (60 to 90 days versus the 40-day bank close)
• Defeasance or yield maintenance prepayment penalties with no flexibility
• Similar or slightly wider all-in pricing once fees are factored in
• A more rigid underwriting process less suited to secondary markets like Gallup

Bank execution through CLS CRE's dedicated STNL program delivered a rate of 6.10% (CMT plus 250 basis points), flexible step-down prepayment options, and a clean non-recourse path starting at 60% LTV. Since this deal was financed at 40% LTV, recourse was not required.

The Underwriting

The deal underwrote cleanly on every metric:

• Loan to value: 40% LTV (well inside the program's 70% maximum)
• DSCR: 2.08x on a 30-year amortization schedule (minimum required: 1.25x on 25-year AM)
• Debt yield: 15.0% (strong for any lender type)
• Loan per square foot: Conservative relative to comparable QSR sales in the region
• Remaining lease term: 15 years corporate NNN, well above the 7-year minimum required
• Tenant credit: Corporate guarantee from a national QSR operator with 500-plus locations

Loan Structure

The final loan terms were as follows:

• Loan amount: $540,000
• Interest rate: 6.10% (CMT plus 250 basis points)
• Term: 5-year fixed rate
• Amortization: 30-year schedule
• Prepayment: Flexible step-down structure (negotiated)
• Recourse: Non-recourse (40% LTV well below the non-recourse threshold)
• Origination fee: 0.50%
• Close: Under 40 days from application

What Made This Deal Work

Several factors made this deal straightforward for a bank STNL lender despite the secondary market location:

1. Corporate tenant with 500-plus locations. The tenant is a national QSR brand with strong brand recognition, deep corporate backing, and a proven track record of honoring lease obligations across its portfolio. This is exactly the tenant profile the program is designed for.
2. New long-term NNN lease. A fresh 15-year corporate lease with options is as clean as it gets from a lease-risk perspective. The lender has income certainty well beyond the loan maturity.
3. Conservative leverage. At 40% LTV, the lender had enormous equity cushion. Even a significant decline in value would leave the loan well covered.
4. Sale-leaseback structure. Sale-leaseback transactions often produce conservative LTVs because the seller-tenant is motivated to trade some equity for liquidity and a long-term operating agreement. The buyer captures a clean NNN cash flow with a corporate guarantee from day one.
5. Strong debt yield. A 15% debt yield at a 6.10% interest rate left plenty of room for market softness without threatening debt service coverage.

Key Takeaway for STNL Borrowers

For acquisitions of single tenant NNN properties in the $500,000 to $8 million range, bank execution through a dedicated STNL program is frequently the best option available. You get competitive CMT-based pricing, non-recourse structures at moderate leverage, flexible prepayment, and closing timelines that work for 1031 exchange deadlines. CMBS and life companies are excellent capital sources for larger deals, but for this size range, bank is often the answer.

CLS CRE maintains active relationships with bank lenders who specialize exclusively in STNL properties. If you have a net lease acquisition or refinance in the $750,000 to $8 million range, contact us. We respond within 24 hours.