Does a five-year NNN downstairs change what you'd pay for the whole building, or does it only change how the lender feels about it

Your instinct about the lease is correct. A lease surfaces value or masks the absence of it. It does not manufacture value from nothing. The seller is pricing as though two years of guaranteed rent is durable income, and your lender may be underwriting it the same way.

Here is the mechanical reason the bank got comfortable: NNN leases, meaning the tenant pays taxes, insurance, and maintenance on top of base rent, look clean on a lender's income schedule. The underwriter sees a signed contract, a defined dollar amount, and a tenant category they recognize. That reduces their perceived risk, so they price the loan tighter, meaning a lower interest rate and better terms for you. That is the bank's problem being solved, and you would be paying for the solution.

The practical issue is that your two-year expiration means you are not buying a stabilized commercial asset. You are buying an option on what happens at re-lease. If the insurance office leaves, you either re-tenant at market, convert the space to something else, or carry vacancy. None of those outcomes are in the seller's cap rate. A 6.2 blended cap rate, meaning the combined income from all uses divided by the purchase price, only holds if that income holds. Strip the retail income and re-run the math on the residential alone, then run it again assuming six to twelve months of downstairs vacancy and a tenant-improvement allowance to attract a new tenant.

The one thing worth knowing here: the retail component will likely need to be re-appraised on a commercial basis at the time of any refinance, and a short or expired lease changes that number materially. Worth confirming with a commercial lender before you close, and with a CPA on how vacancy affects your overall return picture.

What does the residential-only number look like at this price?

Your residential appraisal instinct is correct, and it maps cleanly onto what's happening here. The NNN lease is not creating value, it's creating lender comfort, and those are priced differently.

The assumption doing the most work in the seller's number is that 24 months of in-place income at $22 NNN justifies capitalizing the retail component at a stabilized rate. It almost certainly doesn't. Two years of term remaining means a competent buyer underwrites that space at a post-vacancy figure, not at the current rent, because you own the rollover risk the day you close. If market retail in that submarket is thinner than $22 NNN on re-let, the blended 6.2 cap compresses further the moment the insurance office leaves.

The 30bps tightening from your lender is the tell. The underwriter saw NNN, saw a recognizable tenant category, saw 24 months of scheduled income and priced the debt against that, which is exactly how you end up with cheap financing on an asset you've mentally repriced to a higher cap. You are describing a situation where the debt terms reflect a more optimistic scenario than your own underwriting supports. That's not a reason to walk, but it's a reason to run two separate valuations: one treating the retail as occupied at current rent, one treating it as vacant on day one, and seeing what purchase price makes both cases work.

The residential income is the only durable collateral here. Three two-bedrooms at $1,150 in a market you trust is your floor, and if the building pencils on the residential alone at a price that also happens to include the retail upside optionally, that's a different conversation than paying for stabilized blended yield.

One risk you didn't mention: when the insurance tenant doesn't renew, you're managing a retail lease-up inside a residential asset at the same time your lender's covenants were written assuming it was occupied. Confirm with your lender in writing how they treat retail vacancy during the loan term.

What does the retail space rent for vacant in that submarket, and what's your realistic re-let timeline assumption?

The risk I'd focus on is the rollover gap between when that NNN expires and when a replacement tenant reaches stabilization, because in a three-over-one the ground floor is rarely priced as raw shell, it's priced as income-producing retail, and a six-to-nine month lease-up period with tenant improvement dollars on top can swing your all-in basis by more than the 30bps the lender gave you. If the insurance office leaves and the next tenant needs a buildout, you're funding that from somewhere, and the residential cash flow above is too thin to absorb it without stress.

On your core question, the NNN is doing both things simultaneously, and that's what makes it dangerous to untangle at signing. The seller's number is anchored to the blended cap on current income, which treats two remaining years of NNN as equivalent to five, and the lender's comfort is genuine but it's comfort with the paper, not with the asset post-expiration. You're right that you may be paying for the lender's ease, and the tell is whether the seller would accept the same price if you stripped the retail income out of the NOI and underwrote ground floor at zero for 12 months.

What does the ground floor lease to in that submarket if the insurance office doesn't renew? If there's a deep pool of retail or service tenants at or above $22 per foot, the rollover risk is real but manageable. If the submarket is soft at street level and $22 is at the high end of the range, the NNN isn't surfacing value, it's masking a rent that won't repeat.

Two years left is priced like five years, which is the whole problem with the seller's logic.

What's the ground floor replacement rent if that insurance tenant walks, same $22, or does Jefferson actually support it without a warm body already in place?