How to value a pre-lease as development financing?
I know that if you're starting a from-scratch development you can use pre-leases from national credit tenants as partial financing. My question is, how does a lender assign a specific value to a lease in order to figure this out? 

Presumably it depends on the rent and CAMs paid but what else? Length of term? Financial strength of tenant (other than being an NCT?) For example would it be more advantageous to financing to accept a lower rent from a super-strength NCT or a higher rent from a less powerful NCT?

[{"id": "crgk38y", "text": "There are no rules. All situations are different. It all comes down to risk, so with all else held equal you're better off with less rent with a high credit tenant. You still need to hit the required loan to value / DSCR requirements.  ", "replies": [{"id": "crgpvyu", "text": "Yes for sure I need to hit those requirements. I'm just trying to put less cash in without diluting equity. ", "replies": [], "depth": 2}], "depth": 1}, {"id": "crgzgh2", "text": "I think it depends.  If you're talking about a 100,000 sf shopping center and you're debating about a 1,000 sf shop space tenant, it may not matter too much overall.  But if you're talking about putting in a local, no-name grocer versus one of the brand name national guys in 50,000 sf, it may matter significantly in terms of valuation.  The better name will sometimes command a lower cap rate and a better valuation which offsets lower rent.\n\nThere's obviously some math to it.  You need enough income to service debt but you also want to derive the highest value upon exit.  You may need to look at some sales comps to figure out the difference between the two options, if any.", "replies": [{"id": "crhofo2", "text": "Good points. I guess the short answer is that there is no rule for this - just how a lender views the situation.\n\nIn my case I'm looking at ground floor retail in a 5 storey mixed use building. All tenants would be NTC but some perhaps viewed more favorably than others. The ones that would really bring some flavor and excitement to the development are willing to pay less than some generic ones that don't add anything. I'm trying to quantify the difference but I guess that's impossible.\n\n", "replies": [{"id": "crhyag6", "text": "Did the Lender give any requirements for leasing, such as pre-leasing hurdles or minimum rent guidelines, etc.?  If not, then I think you should be at liberty to do what you think is best for the property so long as it's an economically viable deal.\n\nAt the end of the day, the Lender wants to know that they are protected.  So here's what I recommend in terms of proving it out quantitatively.\n\nIf you can grab cap rate comps for similar types of properties that have traded recently, do the math and figure out what the stabilized value will be at the end of the day by capping projected NOI using the deal(s) that you want.  Compare that to the Lender's outstanding loan balance and if the LTV is as projected when they did the loan (or hopefully better), I don't see why they wouldn't let you make the deal.  \n\nThis isn't an easy way to prove out since it's hard to comp out similar properties (especially first level retail on a mixed-use property) but it might be worth a shot.\n\nAlso, anyone out there notice an error please correct me.\n\nGood luck.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "crhflil", "text": "Lender will be more interested in the credit of the sponsor &amp; guarantor vs credit of your tenant. Lots of different factors at play here but doing a deal with a credit tenant below market is probably your best bet. Any leases paying above market that will roll during the proposed loan term will probably require some form of security from the sponsor in the form of reserve or LOC. ", "replies": [], "depth": 1}]