Hello. I am considering investing in a retail property that is NNN leased to a very solid national tenant (7-11). This would be my first commercial real estate investment and wanted to obtain some advice.
1) The property is leased for 10 years with 3 5-year renewal options. Rent escalation are 10% every five years with current cap rate of 6.5%. Is this a reasonable price for a NNN property?
2) In looking at my returns, what should I assume as my interest rate and closing costs. I'm assuming a interest rate of 6.5% - is this reasonable? I have excellent credit and am willing to put 20-25% down.
3) What other initial costs might I incur? I'm thinking maybe attorney fees to review the current lease and the cost of setting up a corp or llc. Am I overlooking anything?
4) What other costs might I incur on an ongoing basis? I've just thought about attorney and accounting fees - am I missing anything?
5) Any other gotchas or things I should be aware of?

Thanks for your help.

These types of property are overvalued. They are good, like you said.

However, an average walgreens in Washington state is like $8-10 million. It's not worth it at all. If they are so great, why does the seller want to sell? B/C its overvalued.

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whats important in addition to cap rate is the spread between lending rate and the cap rate.
if you cant get at least a 1.7% spread, then you wont be making much on your equity. always keep in mind your alternatives, from the safe rate (return on the 10 yr treasury) to CDs. if you aren't getting much of a risk premium (ie the return above the risk free rate), then why do it?

if the loan will be at least $1M, you'll get better rates. as of today, I am seeing in the 6.5% range amort 30 years. if you go with an insurance company lending program, they have lower rates but shorter amortization periods (say 6.15% amort 25 yrs). most lenders will also want to see at least a 7-8 year primary lease term, preferably 10 years.

also, if you want to find out just how strong 7-11 is, look them up on Standard and Poors. investment-grade tenants should be rated BBB or better. also check them out on yahoo finance.