What is a triple-net lease?

A lease in which the tenant pays, in addition to rent, all expenses related to the operation of the property, including both fixed and operating expenses. As with net leases, it is important that each lease is reviewed to determine the expenses for which the tenant is responsible. It also may be referred to as a net-net-net or NNN lease.

What is a 1031 exchange?

Section 1031, of the Internal Revenue Code of 1986, as amended, offers real estate investors one of the last great investment opportunities to build wealth and save taxes. By completing an exchange, the investor (Exchanger) can dispose of their investment property, use all of the equity to acquire replacement investment property, defer the capital gain tax that would ordinarily be paid, and leverage all of their equity into the replacement property. Two requirements must be met to defer the capital gain tax: (a) the Exchanger must acquire like-kind replacement property and (b) the Exchanger cannot receive cash or other benefits (unless the Exchanger pays capital gain taxes on this money). The tax code states: "No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment purposes if such property is exchanged solely for property of a like-kind which is to be held for either productive use in trade or business or for investment purposes." Investors can accomplish virtually any investment objective with exchanges including greater leverage, diversification, freedom from joint ownership, improved cash flow, geographic relocation and/or property consolidation.

What is non-recourse commercial real estate financing?

A non-recourse loan is secured only by the mortgaged commercial real estate asset and does not permit the lender to access or control any other assets of a borrower.

What are the typical due diligence reports needed for a commercial real estate loan?

An appraisal report, environmental report and an engineering report completed by independent professional third parties is normally required by lenders.

What is meant by “carve-outs” as they relate to a non-recourse loan?

Even though a loan may be classified as non-recourse, the borrower may be required to guarantee and personally indemnify the lender against fraud, misrepresentation, misuse of insurance or condemnation proceeds, damage or waste to the security, failure to apply rents to loan balance or operating expenses after default, rents collected for more than one month in advance, including security deposits, delinquent public assessments and any expense, claim, bankruptcy, judgement or deficiency arising from environmental damage or application of environmental protection laws.

What is a rate lock agreement?

An instrument executed between the borrower and lender whereby the interest rate on a loan is determined in advance of the scheduled loan closing. Under most circumstances, the lender requires the borrower to put up a substantial deposit that could be non-refundable if the loan fails to close.

How long does a typical commercial real estate loan take to process?

From initial contact to closing, a commercial real estate loan will normally take approximately 90 days.