The Advantages of Getting Investment Grade Tenants
If you happen to own a property that is for rent, then you know how important investment grade tenants are. Investment grade tenants provide landlords with several financing choices.
Investment grade tenants get to receive an investment grade rating from any rating agency, and they are usually big, reputable companies. Lenders typically provide financial assistance to tenants depending on their landlord’s credit or the value of the real-estate, but when it comes to credit tenants, everything now depends on the tenant himself as well as the value of the lease payments he will be making in the following months.
So, what is investment grade rating?
Investment grade ratings are the basis of credit tenant lenders to secure loans for the tenant as well as sell them to investors. Investment grade basically implies a minimum rating of BBB-. The majority of investors only choose to invest in products and bonds that are being back up by tenants with investment grade such as Home Depot and Walgreens. States and cities are also participating in this credit tenant financing industry.
So, how do you get credit tenant loans?
With the aid of a credit tenant, any landlord can now refinance or purchase a property by being eligible in processing long-term loans. Such loans can follow a non-recourse structure for the sake of the landlord. This simply means that there is no risk of personal liability because this kind of loan greatly depends on the value of the lease.
How do you transact sale leasebacks?
Direct financing is made possible on the part of the credit tenants if they get themselves involved in sale leaseback transactions. Once you have attained an investment grade rating as a property owner, you can then choose to sell your property to an investor and get to lease it back. In comparison to typical commercial real estate loans, property owners can now optimize their loan-to-value amount and increase their cash, thereby favoring them more.
What credit tenant lease terms should you be aware of?
Institutional investors only take the task of offering credit tenant financing, they do not necessarily take any of the responsibilities being expected of any property owner or landlord. There are three net terms that comprise credit tenant leases. This implies that it is the responsibility of credit tenants to pay for their taxes, insurance, and maintenance costs. The loan terms will have to be parallel with the duration of the lease. All of these obligations greatly rely upon the tenant, meaning this burden is no longer a responsibility of the landlord. On the part of both the investor and the landlord, credit tenant lease terms have the same function as that of a corporate bond. What they just basically do during the entire duration of the real estate project is not get involved actively and just collect the check.