Requirements at a Glance
Lenders evaluate qualification across three independent boxes: the property fundamentals, the borrower and sponsorship profile, and the business plan or use of proceeds. A single failure in any box can derail a deal even when the other two are strong.
| Category | Requirement | Detail |
|---|---|---|
| Property | Lease term remaining | 10+ years WALT minimum for life company execution, 7+ years minimum for CMBS or bank |
| Property | Tenant credit quality | Investment-grade rated tenant for life company best execution, strong national franchise acceptable for CMBS |
| Property | LTV | 60% to 70% for life company, up to 75% for CMBS, 65% typical for bank |
| Property | DSCR | 1.10x minimum for investment-grade tenant, 1.20x to 1.25x for sub-investment-grade or franchise |
| Property | Rent escalations | Fixed step-ups or CPI bumps preferred, flat rent accepted at wider spread |
| Property | Lease structure | Absolute NNN or NN with tenant responsible for taxes, insurance, and maintenance confirmed in lease review |
| Property | Asset type and location | Freestanding retail, QSR, pharmacy, auto, industrial, or medical preferred in primary or secondary markets |
| Borrower | Net worth | Equal to or greater than loan amount on recourse deals |
| Borrower | Liquidity | 5% to 10% of loan amount post-close |
| Borrower | Credit score | 680+ FICO for recourse transactions, less determinative on non-recourse credit-tenant deals |
| Borrower | Net lease experience | Prior net lease ownership preferred, though less critical than on value-add transactions |
| Documentation | Fully executed lease | Complete lease with all amendments, guaranty, and any subordination or non-disturbance agreements |
| Documentation | Tenant financials | Most recent 2 to 3 years of tenant audited financials or public credit rating confirmation |
| Documentation | Rent commencement and expiration dates | Lender confirms remaining term and any renewal or termination options that could shorten effective term |
Documentation You Will Need
Sponsors who arrive at term sheet stage with these documents in hand close 1 to 2 weeks faster than those who scramble during due diligence.
- Fully executed lease agreement with all amendments and riders
- Tenant guaranty or corporate guaranty documents
- Tenant financial statements (2 to 3 years audited) or public credit rating report
- Subordination, non-disturbance, and attornment agreement (SNDA) if applicable
- Current rent roll confirming in-place rent, escalation schedule, and expiration date
- Trailing 12 months operating statements and bank statements for the property entity
- Borrower personal financial statement (PFS) dated within 60 days
- Schedule of real estate owned with existing debt detail
- 2 years personal and entity tax returns
- Purchase contract or refinance payoff statement
- MAI appraisal within 6 months (lender may order own at borrower cost)
- Phase I environmental site assessment
- Property condition assessment or inspection report
- Title commitment and survey
What Qualifies You
These are the factors that materially improve qualification odds and pricing.
Investment-grade tenant credit
A tenant carrying a BBB or higher rating from a nationally recognized rating agency is the single most powerful underwriting accelerant in net lease. Life companies and CMBS conduits compress spreads and extend leverage significantly for investment-grade credits relative to franchise or unrated tenants.
Long weighted average lease term
WALT of 15 or more years unlocks life company execution at the tightest spreads. Every year of lease term below 10 years compresses proceeds and can shift execution from life company to CMBS or bank. Lenders want the loan to mature before the lease, not after.
Rent escalation structure
Fixed percentage step-ups (1.5% to 2% annually) or CPI-based bumps increase underwritten net operating income over the loan term and reduce refinance risk at maturity. Flat rents with no escalations receive less favorable treatment, especially in longer-term life company quotes.
Absolute NNN lease structure
An absolute NNN lease, where the tenant pays all taxes, insurance, and maintenance with no landlord obligations, is the cleanest underwrite. Double-net structures where the landlord retains a roof and structure obligation add expense volatility and receive slightly less favorable treatment.
Conservative LTV relative to cap rate
Net lease values are cap-rate sensitive. Sponsors underwriting to a tight cap rate who request 70%+ LTV leave little buffer for cap rate expansion at refinance. Lenders underwrite to stressed cap rates, and borrowers who size loans below 65% LTV encounter fewer constraints across all channels.
Strong franchise unit economics for non-rated tenants
For QSR, auto, or service franchise tenants without investment-grade ratings, lenders substitute franchise performance data, unit-level sales volumes, and franchisee financial strength. A franchisee with 20+ units and audited financials showing strong coverage qualifies at better proceeds than a single-unit operator.
No kick-out or termination options within loan term
Lease provisions allowing the tenant to terminate early, co-tenancy clauses, or kick-out rights tied to sales thresholds materially complicate underwriting. Lenders either exclude the termination period from the qualifying term or require reserves. Clean leases with no options during the loan term transact faster.
What Disqualifies You
Common decline reasons that surface during underwriting. Most can be addressed with structuring or by routing the deal to a different program.
Remaining lease term shorter than loan maturity
A loan that matures after the lease expires is effectively unsecured. Most lenders will not originate a 10-year fixed loan against a property with 8 years of lease term remaining. The practical floor is lease term equal to loan term plus 6 to 12 months, and the preferred structure is lease term exceeding loan maturity by several years.
Tenant with below investment-grade or unrated credit and no franchise data
A local or regional tenant with no public credit profile, no franchisee financials, and no national brand affiliation creates an underwriting vacuum. Life companies will decline. CMBS conduits typically require minimum franchise unit counts or documented tenant financials. These deals fall to bank or private lender channels at significantly higher cost.
Flat rent with no escalations and long term
A 20-year absolute NNN lease with zero rent escalations represents substantial purchasing-power erosion over the loan term. Some life companies will decline on principle. Others will underwrite to a lower effective LTV to account for the residual value risk at maturity when in-place rents may be well below market.
Tenant-specific real estate with limited alternative use
Single-purpose assets built specifically for one tenant, such as a drive-through restaurant prototype or a build-to-suit warehouse, are valued almost entirely on the lease income stream. If the tenant vacates, dark value is a fraction of occupied value. Lenders cap proceeds more conservatively and require lower LTV to protect against re-tenanting risk.
Active tenant financial distress or lease renegotiation
A tenant in bankruptcy, seeking rent relief, or actively renegotiating lease terms will effectively halt any financing process. Lenders require clean, performing leases with no ongoing disputes. Any public disclosure of tenant financial stress, even short of bankruptcy, triggers underwriting holds until resolution.
Typical Qualified Borrower
If your situation matches one of these profiles, the program is likely a strong fit.
- Private investor or 1031 exchange buyer acquiring a freestanding QSR, pharmacy, or dollar store with a 15-year corporate lease
- Family office or HNWI building a net lease portfolio seeking long-term fixed-rate permanent debt matched to lease cash flows
- Developer who completed a build-to-suit net lease project and is converting a construction loan to permanent financing
- Institutional net lease buyer seeking life company or CMBS execution on a credit-tenant industrial or medical outpatient deal
- Franchisee or operator doing a sale-leaseback and financing the acquired real estate with a simultaneous net lease loan
- Net lease syndicator assembling a portfolio of STNL assets and seeking portfolio-level permanent financing from a single lender
- Owner of an existing net lease property refinancing to pull equity after cap rate compression has increased asset value
Timeline
Net lease permanent loans typically close in 45 to 75 days from term sheet acceptance, with life company executions running toward the longer end due to committee approval requirements. CMBS conduit closings run 60 days and are calendar-driven by securitization deadlines. Bank deals on smaller transactions can close in 30 to 45 days. Sponsors who deliver the executed lease, tenant financials, and property appraisal at term sheet stage materially compress the diligence timeline.
Frequently Asked Questions
What tenant credit quality do I need to qualify for net lease financing?
Investment-grade tenants (BBB or higher) unlock life company and CMBS execution at the tightest spreads and highest LTV. Sub-investment-grade but nationally recognized franchise tenants qualify for CMBS and bank financing with additional underwriting on unit economics and franchisee strength. Unrated local tenants with no franchise affiliation are limited to bank or private lender channels at wider pricing.
How much lease term remaining do I need to qualify?
Most lenders require a minimum of 10 years of lease term remaining, with the loan maturity falling before the lease expiration. Life companies prefer 15 or more years WALT. CMBS conduits will work with 7 to 10 years but price the shorter term wider. Bank lenders on smaller deals sometimes go as low as 5 years but cap LTV accordingly.
What LTV can I expect on a net lease loan?
LTV ranges from 60% to 75% depending on tenant credit, lease term, and lender channel. Life companies typically max out at 65% to 70% on investment-grade deals. CMBS can reach 70% to 75% on qualified transactions. Bank lenders generally stay at 65% or below. Higher cap rate properties can support higher LTV in dollar terms because the income coverage is stronger.
What DSCR do net lease lenders require?
Minimum DSCR runs 1.10x for investment-grade tenants and 1.20x to 1.25x for franchise or sub-investment-grade credits. The lower threshold for investment-grade reflects that the credit risk is on the tenant balance sheet, not the property income volatility. DSCR is underwritten on in-place contractual rent, not market rent assumptions.
Can I get non-recourse net lease financing?
Yes. Non-recourse execution is standard for life company and CMBS net lease loans, typically with standard bad-boy carve-outs for fraud, waste, and environmental indemnification. Bank lenders frequently require full recourse on deals below $3M to $5M and may offer carve-out non-recourse on larger transactions with strong tenant credit.
How does a 1031 exchange affect the net lease financing timeline?
A 1031 exchange imposes a 45-day identification window and a 180-day closing deadline, which can compress a standard 60 to 75 day financing timeline. Most exchange buyers identify the target property before the 45-day deadline and immediately engage a lender. Having the lease, tenant financials, and appraisal ready at identification cuts 2 to 3 weeks from the lender diligence cycle.
What happens if the tenant has a termination option during the loan term?
Termination options reduce the effective qualifying lease term to the first termination date, not the stated expiration. If a 15-year lease has a tenant termination right at year 10, most lenders underwrite as a 10-year lease. Lenders may require a tenant estoppel waiving or confirming the option, or reserve funds sized to cover re-tenanting costs if the option is exercised.
Which lender channel offers the best pricing for net lease deals?
Life companies offer the tightest spreads and longest fixed-rate terms, typically 10 to 25 years, on credit-tenant deals with 15 or more years WALT. CMBS conduits offer competitive pricing on standard STNL deals with slightly more leverage flexibility. Bank lenders fill the gap on smaller transactions, shorter lease terms, or non-credit tenants, but at floating or shorter fixed-rate structures.
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