The Advantages of Getting Investment Grade Tenants
If you own a property and offer it for rent, then you should consider seeking investment grade tenants. Investment grade tenants offer landlords numerous financing options they can choose from.
Investment grade tenants get to receive an investment grade rating from any rating agency, and they are usually big, reputable companies. Rather than focusing on the landlord’s credit or the value of the real estate when lenders provide financial assistance, they now make sure that it is based on the credit tenant renting the property as well as the value of his or her lease payments in the succeeding months.
So, what is investment grade rating?
With investment grade ratings, credit tenant lenders will be able to determine if the tenant can get loans and sell them to other investors. Investment grade simply means that you have reached 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, what are 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. A non-recourse structure of loan is guaranteed to the landlord in the process. This simply means that there is no risk of personal liability because this kind of loan greatly depends on the value of the lease.
What is the significance of sale leaseback transactions?
When credit tenants get themselves involved in sale leaseback transactions, they can immediately do direct financing. If you own a property and have a investment grade rating of your own, then this means that you can simultaneously sell your property and then lease it back. Compared with typical commercial real estate loans, any property owner is given the luxury to increase their cash with a higher loan-to-value that favors them more.
What credit tenant lease terms should you be aware of?
Just because institutional investors offer credit tenant financing, this does not automatically mean that they also take on the responsibilities often imposed when one is a landlord. Typically, credit tenant leases comprise three net terms. This simply means that credit tenants should shoulder whatever insurance, maintenance costs, and taxes they must pay. The loan terms should be based upon the entire lease duration. All of these obligations greatly rely upon the tenant, meaning this burden is no longer a responsibility of the landlord. From the standpoint of both the investor and the landlord, credit tenant lease terms function the same as corporate bond. Quite simply, all they have to do during the real estate project process is just collect checks and not get themselves involved actively.
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