Achieving Superior Investment Returns Using Commercial Real Estate

What if it was possible to buy a real estate asset like say a Walgreens, a Sam’s Club or even a Verizon Wireless East Coast Corporate Headquarters that delivers you a safe, guaranteed return on your money in the range of 10%-30% annually, year over year, for the life of the tenants long term lease?

What if the cost to acquire such an asset only required a 27% down payment on the asset and came with a 1.5% interest rate, fixed for 30 years, with 30 year amortization and could be used on any retail, industrial, office or residential property requiring $500,000 to $300 Million per deal? What if the loan was not based on your credit and had no prepayment penalty if you sell the asset?

Welcome to the world of the structured finance investor!

Traditionally bank financing has been the only way to purchase assets and properties. However this is not the case, It is simply the most marketed and most known avenue of finance. When you move into the world of High Finance you encounter financing arrangements that look more like securities offerings and less like a traditional loan, however, these deals typically only happen in the $100 million and up range to finance large scale public work projects, humanitarian aid projects, and larger development deals. This is the world of structured finance. There are lending institutions that for years has replicated the same business model only at loan amounts that start at $500,000 and up. In a nut shell, these deals are funded by insuring the target property at 3x its value utilizing performance bonds and other insurance products which can be leveraged to provide an extremely low interest rate towards the purchase or refinance of an asset. These deals are structured and delivered the same way as a traditional mortgage however they close much quicker, have a much higher LTV, have a 1.5% interest fixed for the life of the loan and are based on the asset rather than the borrower.

These programs are available anywhere in the US.

Lets play with #’s to see how this plays out for you, the investor!

The following examples are real assets available now in the marketplace (as of the time of this writing), either openly listed or off market deals that only a select few investment sales broker’s know about.

Example #1:

Walgreens located in Orange Park FL. Walgreens is a ‘BBB’ S&P rated investment grade company with annual net earnings of $2.5 Billion dollars a year and sales revenue of $72.2 Billion. Landlord responsibilities: None. Tenant responsible for roof and building structure.

$3,306,000 Asking purchase price
$250,000 Net Operating Income
$892,620 Down payment including all points and closing costs (27%)
$2,479,500 Loan Amount (75% LTV – no prepay penalty)
$11,409.67 Monthly Debt Service @ 1.5%, fully amortized, fixed for 30 years
$136,914 Annual DS
$113,086 Annual Cash Throw Off (NOI after debt service)
12.67% Return on Investment

Example # 1 using traditional bank financing:

$3,306,000 Asking purchase price
$250,000 Net Operating Income
$859,560 Down payment including all points and closing costs (26%)
$2,479,500 Loan Amount (75% LTV – prepay penalty)
$17,245.67 Monthly Debt Service @ 4.75%, fully amortized, fixed for 10 years
$206,948.04 Annual DS
$43,051.96 Annual Cash Throw Off (NOI after debt service)
5% Return on Investment

Example #2:

269 Unit Class A Apartments located in Boynton Beach FL next to brand new $300 Million dollar hospital. Built in 2001. Acquired below present estimated replacement cost. 93% occupancy plus upside revenue of $400,000 per year from renovations into project.

$38,000,000 Asking purchase price
$2,232,206 Net Operating Income
$10,260,000 Down payment including all points and closing costs (27%)
$28,500,000 Loan Amount (75% LTV)
$98,359.26 Monthly Debt Service @ 1.5%, fully amortized, fixed for 30 years
$1,180,311 Annual DS
$1,051,895 Annual Cash Throw Off (NOI after debt service)
10.25% Return on Investment

Example # 2 using traditional bank financing:

$38,000,000 Asking purchase price
$2,232,206 Net Operating Income
$9,880,000 Down payment including all points and closing costs (26%)
$28,500,000 Loan Amount (75% LTV)
$148,669.49 Monthly Debt Service @ 4.75%, fully amortized, fixed for 30 years
$1,784,033.88 Annual DS
$448,172.12 Annual Cash Throw Off (NOI after debt service)
4.536% Return on Investment

Example #3:

East Coast Headquarters in the Carolinas for a Top 25 Global Company, cell phone carrier. A 150,000 square foot building built in 2004 to companies specifications to withstand a category 5 hurricane. This building was built as a fortress to ensure that if the East coast of the US goes down, this building has the capacity to fix the problem and bring its East Coast cellular network back on in an expedient manner.

$21,950,000 Asking purchase price
$1,652,835 Net Operating Income
$5,962,500 Down payment including all points and closing costs (27%)
$16,462,500 Loan Amount (75% LTV)
$56,815 Monthly Debt Service @ 1.5%, fully amortized, fixed for 30 years
$681,784 Annual DS
$971,050 Annual Cash Throw Off (NOI after debt service)
16.38% Return on Investment

Example # 3 using traditional bank financing:

$21,950,000 Asking purchase price
$1,652,835 Net Operating Income
$5,707,000 Down payment including all points and closing costs (26%)
$16,462,500 Loan Amount (75% LTV)
$114,501.59 Monthly Debt Service @ 4.75%, fully amortized, fixed for 30 years
$1,374,019.08 Annual DS
$622,035.72 Annual Cash Throw Off (NOI after debt service)
10.899% Return on Investment

As one can see with the above examples, purchasing ‘Cash Flowing’ Commercial Real Estate using structured finance allows an investor to maximize their return on their money via leverage while minimizing risk. When applied to the investment arena of ‘Single Tenant Triple Net Leased Investments’, an investor gains above markets returns backed by corporate guarantee’s on long term leases that are typically not seen in the market place.

This program created superior returns backed by the strongest Commercial Property assets in the United States. This combines for a long term, stable, consistent and winning investment model for all levels of investors.