There are two primary categories of properties to take into account when financing commercial real estate: single-tenant and multi-tenant. The advantages and drawbacks of each choice are distinctive, and there are a variety of financing choices available for each. This article will compare the pros and cons of financing single-tenant properties against multi-tenant properties so you can decide which is best for your investment objectives.

Single-Tenant Properties

Commercial real estate properties with only one tenant are referred to as single-tenant buildings. Retail establishments, office buildings, and commercial warehouses are some examples of these properties. The lease’s stability is the key benefit of purchasing a single-tenant property. As one tenant has a long-term lease on the entire property, the owner receives a consistent flow of money for the course of the lease agreement.

NNN financing is a well-liked financing choice for single-tenant buildings. NNN finance, also known as triple net financing, is a kind of commercial real estate loan where the borrower takes on the cost of all property-related liabilities, such as taxes, insurance, and upkeep. The majority of the time, borrowers with good credit and a stable financial history can access this sort of financing.

The fact that NNN financing offers lower interest rates and longer repayment terms than conventional commercial real estate loans is one of its main benefits. Investors may be able to reduce interest costs and improve cash flow as a result. Furthermore, because lenders think single-tenant properties have a more stable income stream than multi-tenant properties do, NNN financing may be simpler to get than standard loans.

Multi-Tenant Properties

On the other hand, multi-tenant properties are pieces of commercial real estate that have many tenants leasing them. These properties may be malls, business parks, or apartment buildings. The possibility for higher rental revenue is one of the key benefits of making an investment in a property with several tenants. The income stream for the property owner might be more varied and possibly higher with several tenants paying rent as opposed to a single tenant property.

There are numerous financing options available for multi-tenant buildings. CMBS financing, also known as commercial mortgage-backed securities financing, is one popular choice. With this kind of financing, numerous commercial real estate loans are bundled together and sold as bonds to investors. As a result, investors might profit from the interest on the loans. Typically, borrowers with good credit and a stable financial history can get CMBS funding.

Conventional finance is yet another option for multi-tenant buildings. This kind of financing is comparable to conventional house mortgages in which the borrower makes regular payments over a certain length of time after making a down payment. Borrowers with good credit and a steady source of income frequently have access to conventional finance.

Which Is Better?

Which financing method—NNN financing for single-tenant buildings or CMBS financing for multi-tenant properties—is therefore preferable for commercial real estate properties? Your investment objectives and risk tolerance will determine the answer.

Single-tenant properties with NNN financing can be a better choice if you’re searching for a secure, long-term investment with a consistent revenue stream. Longer lease arrangements are customary for these buildings, which can offer a steady income stream for years to come. Moreover, NNN financing provides longer payback terms and cheaper interest rates, which can cut your interest costs and improve cash flow.

Multi-tenant properties with CMBS financing can be a better choice if you want to take on more risk but could earn possibly larger returns. With various tenants, these properties give you the chance to diversify your revenue stream while also providing the possibility of larger rental income. Yet compared to NNN financing, CMBS financing frequently has higher interest rates and shorter payback terms, which might raise the risk of default.

Your specific investment objectives and risk appetite will ultimately determine whether you choose CMBS financing for multi-tenant buildings or NNN financing for single-tenant properties. When selecting a choice, it’s crucial to carefully weigh the benefits and drawbacks of each possibility. You can better understand the financing alternatives available and make a decision that fits with your investment strategy by working with an experienced commercial real estate lender.

No matter whatever financing method you decide on, it’s crucial to perform extensive due diligence on the property and renters before making an investment. This include looking at leases, renter finances, and records of property maintenance. Also, it’s crucial to collaborate with a group of knowledgeable experts, such as a real estate lawyer, accountant, and property manager, to make sure that your investment is effective and lucrative over the long term.

F2H Capital Group is a debt advisory firm specializing in negotiating the best terms for your commercial real estate projects. The company offers a range of financial products and services, including fixed loans, bridge loans, and construction loans across all asset types. Please contact us for any of your financing needs.