CHICAGO—Envoy Net Lease Partners, LLC has just started a new national lending program that will provide up to 100% loan-to-cost financing for developers, retail and restaurant companies ready to launch ground lease developments. The Chicago-based company is the first lender, at least since the 2008 crash, to offer 100% financing, far more than any bank.
“Banks pretty much will not do a loan-to-cost above 80%,” Ralph N. Cram, president of Envoy, tells GlobeSt.com, forcing developers to seek an equity partner for the remaining funds — a route that adds substantial costs while taking away control.
“Our goal is to make ground lease transactions easier and less expensive than ever before,” says Cram. “We can be a more aggressive lender than banks, which are prohibited by regulation from providing this high a level of financing for ground leases even though they're historically one of the safest forms of construction loans.”
These transactions involve the acquisition and preparation of raw land that the owner will lease long-term to a tenant which will construct its own building upon the site. Tenants like McDonald's, Chase Bank and AutoZone typically use ground leases to finance new units.
As reported in GlobeSt.com, intense competition among investors has sent cap rates for single tenant bank properties to historic lows. The median rates for Chase Bank, for example, have already hit 4%. Furthermore, McDonald's ground leases are so popular that their rates have gone below 4%, and sometimes down to about 3.5%.
Cram says Envoy will not restrict the program to specific regions or cities and plans on doing ten to fifteen of these transactions per year. “We'll go anywhere that has a credit-worthy tenant with a well-capitalized developer.”
“There are risks,” he adds, at least to Envoy, which will offer up to $4 million per property. “What we're looking for are very experienced operators and well-capitalized developers that can handle any cost overrun issues. And we only lend when all the permits are ready and the lease is signed and the site has a clean environment report.”
Both the economic recovery and the popularity of the net lease market helped convince Envoy officials that the company could offer 100% financing. “There has been a tremendous amount of money looking to get into ground leases,” Cram says, “and our investors have become comfortable with this market.”
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