What Are the Benefits of Hiring 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 offer landlords numerous financing options they can choose from.
Investment grade tenants are usually companies that have their very own investment grade rating that is made by a specific rating agency. 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?
It is the investment grade ratings of a tenant that help credit tenant leaders decide if the tenant can avail of loans and sell them to investors. Getting a minimum rating of BBB- is what investment grade is all about. A lot of investors opt to make investments with products and bonds that are backed by investment grade tenants such as Home Depot and Walgreens. States and cities are also major participants of the 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. The landlord will then get to avail of a loan that has a non-recourse structure. 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. 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. 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.
Some credit tenant lease terms you should know about
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. Most credit tenant leases have three net terms. This means that credit tenants are the ones responsible in paying insurance, taxes, and maintenance costs. The loan terms should be based upon the entire lease duration. It is the role of the tenant to make sure that all of these obligations are carried out, implying that landlords no longer need to deal with such burden. From the point of view of both the investor and the landlord, credit tenant lease terms are akin to a corporate bond. This means that all they have to do during the real estate project duration is collect checks as well as not actively get themselves involved.
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