A transatlantic underwriting divide: The triple net bet

Mission-critical industrial and logistics real estate—long-dated triple-net leased facilities central to a tenant’s operations—represent one of the most resilient corners of commercial real estate. These assets are “sticky” by design. They contain bespoke machinery, site-specific permits, and logistical integrations that cannot be replicated elsewhere without enormous cost or disruption. The capital sunk into equipment often exceeds the value of the real estate itself, making relocation highly improbable.

Despite these fundamentals, financing diverges dramatically across the Atlantic. In the United States, lenders underwrite to cash-flow durability and tenant immobility. In Europe, banks remain anchored to vacant possession value (VPV) and IFRS-driven provisioning. The result is a structurally underleveraged European market, where credit supply lags fundamentals.

The U.S. playbook: Cash flow first

American banks size loans using Debt Yield and DSCR, not fire-sale collateral values. Minimum debt yield thresholds are typically 10 percent, and many mission-critical facilities underwrite at 11–13 percent. DSCR requirements hover around 1.4–1.6x, stressed to 1.25x.

The math underscores resilience. An 8 percent cap rate property financed at 70 percent LTV produces a debt yield of 11.4 percent. At this level, NOI can support interest rates up to 11 percent before ICR falls to 1.0x, quite a substantial refinancing buffer.

Tenant stickiness

U.S. underwriting explicitly recognizes the capital already sunk into equipment costs, non-transferable permits, and operational dependency, which make tenant exit prohibitively expensive. Default risk is therefore a corporate event, not a property outcome.

Break-even cap rate cushion

This spread between debt yield (11–13 percent) and market cap rates (6–8 percent) gives U.S. lenders significant headroom. Even if cap rates widen by several hundred basis points, the risk of loss on the loan remains minute because it was sized to robust cash flow, not collateral value.

Flexibility reinforces this framework

Interest-only periods, tail-end amortization, and sweeps near lease expiry are common. Deep secondary markets, including CMBS, REITs, and private credit, provide refinancing liquidity. The outcome is 65–75 percent LTV on investment value, double-digit debt yields, and loans aligned to real operating risk.

The European lens: Collateral first

In Europe, the underwriting lens is different. Credit committees anchor to VPV and alternative use. A €30m facility generating €2.4m NOI (8 percent cap rate) might have a VPV of €15–20m. Even if banks lend 100 percent of that VPV, the borrower receives only half the purchase price. The irony is that the loan may deliver a day-one debt yield of 15–20 percent, which is ultra-safe on cash metrics yet is still treated as risky because of its VPV ratio.

IFRS 9 provisions add to this conservatism. As a lease tail shortens without renewal, or if tenant risk indicators shift, banks may reclassify loans to Stage 2 (a significant increase in credit risk), requiring lifetime expected loss provisioning. To mitigate this, lenders often front-load amortization and keep balances ultra-low relative to VPV. These rules are designed to encourage earlier recognition of risk and maintain capital resilience at the system level.

Data limitations compound the challenge. Many tenants are unrated, private, and disclose only statutory accounts. Without transparency, banks rely more heavily on collateral metrics. The result is lower advance rates, higher spreads, heavier amortization, and structures that place more emphasis on collateral value than on tenant dependency.

The transatlantic disconnect

On identical assets, the financing gap is stark.

• U.S.: €2.4m NOI supports: €21m of debt (70 percent LTV, 11.4 percent DY)
• Europe: €2.4m NOI supports: €15m of debt (50 percent LTV, 16 percent DY)

This translates into roughly €6m less debt capacity in Europe, despite identical tenant, lease, and cash flow. While the U.S. model prioritizes tenant viability, the European model remains more closely tied to collateral liquidation value. Conservative collateral treatment reduces available debt capacity, which expands debt yield and makes the loan appear safer, but in reality, there is no difference between the two cases.

Default-rate validation

If Europe’s conservatism implied superior credit outcomes, U.S. defaults would be expected to run higher. Available evidence does not indicate that. However, it should be noted that comparisons come with caveats given product mix, legal frameworks, and securitization prevalence.

• U.S. industrial CMBS delinquency stood at 0.6 percent in Aug 2025, the lowest of any property type, compared to 7.3 percent for CMBS overall and 11.7 percent for office.¹
• European CMBS defaults were negligible: no defaults at maturity in 2024, three defaulted loans were either subsequently cured or recovery proceeds allocated to noteholders. Nine of ten industrial/logistics loans improved on either Debt Yield or LTV² from December 2023.
• Corporate credit risk is comparable. S&P data shows 2023 speculative-grade default rates of 4.5 percent in the U.S. and 3.5 percent in Europe, while investment-grade defaults were essentially zero.³
• Historical NNN lease evidence: a CCIM/Calkain study of 100 single-tenant net lease deals found zero defaults among 70 investment-grade tenants, with all six defaults tied to non-IG credits.⁴

The evidence is consistent: underwriting to cash flow has not produced higher defaults. Both U.S. and European industrial assets exhibit remarkably low realized loss rates. In both systems, underwriting frameworks reflect different regulatory priorities rather than clear differences in realized risk.

Toward a European cash-flow model

Closing the gap does not require lower standards but better alignment with fundamentals.

• Dual sizing: Advance debt to the tighter of debt yield ≥10–12 percent/DSCR ≥1.5× or VPV- LTV ≤60 percent.
• Tenant stickiness scoring: Formalize sunk capex, replacement cost, permits, and operational dependency as credit mitigants.
• Lease-tail structuring: Use tail-weighted amortization or sweeps to mitigate IFRS Stage 2 triggers.
• Transparency: Encourage audited accounts, covenant packages, and credit insurance to reduce reliance on VPV.
• Capital optimization: Blend bank senior debt with debt fund mezzanine and recycle seasoned pools into CMBS or covered bonds to broaden refinancing routes.

The liquidity shift

In Europe, regulatory capital treatment and loan-loss provisioning rules have historically driven banks to size against collateral value, often limiting leverage despite strong cash flows. That dynamic is beginning to change.

Office distress is prompting capital to reallocate. The River Ouest/Atos default, only the second AAA loss in European CMBS since the GFC, underscores where the risk lies. By contrast, the industrial sector has continued to deliver resilient performance.⁵

Alternative lenders are moving earlier. Debt funds and insurers increasingly underwrite to debt yield and DSCR alongside VPV, supporting leverage at 60–70 percent LTV. Securitization markets are reopening, with logistics-heavy pools attracting strong demand.

Disclosure is also improving. Non-investment-grade tenants are providing more transparency, often linked to ESG reporting, to access broader and cheaper pools of capital.

The result is a market that is gradually converging toward a more cash-flow-sensitive approach. Appetite for mission-critical net lease industrial assets is expanding, liquidity is deepening, and structures are beginning to reflect operating fundamentals more directly. As advisors active in this segment, we are seeing lenders engage with greater granularity around tenant stickiness, invested capex, and cash-flow durability.

Partner with a trusted advisor to navigate evolving frameworks

Mission-critical NNN industrial is cash-flow infrastructure, not speculative real estate. Loan default risk is tied to corporate solvency, not vacant possession. The U.S. model recognizes this, and the data indicates it has not generated higher losses.

European frameworks remain more influenced by collateral and prudential rules, though signs of adjustment are emerging. As European lenders explore more cash-flow-sensitive structures, liquidity in the sector is gradually increasing.

For institutional investors, the question is not whether one model is right or wrong, but how quickly European practice converges toward a blended approach, and who positions themselves early enough to benefit as that evolution unfolds. Effectively sourcing these opportunities will hinge on market access and deal flow, which are avenues where an experienced advisor can bridge between lender caution and asset fundamentals, helping investors capture liquidity that may otherwise remain underutilized.

Contact Walker & Dunlop experts in EMEA for more information.

^Sources:

^{1. Trepp, CMBS Delinquency Report, Aug 2025.}

^{2. Scope Ratings, European CRE/CMBS Outlook 2025}

^{3. S&P Global Ratings, Annual Global Corporate Default Study 2023}

^{4. CCIM Institute / Calkain Research, Single-Tenant Net Lease Default Study}

^{5. Financial Times, Atos default triggers second-ever AAA loss in European CMBS, 2024.}