Some Things You Should Know About 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 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?
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-. 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. The industry of credit tenant financing also includes the participation of sates and cities.
So, what should you know about 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.
What is the significance of sale leaseback transactions?
When credit tenants engage themselves in sale leaseback transactions, this implies that they can do direct financing. 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. Opposite with the typical commercial real estate kind of loan, any property owner can increase their cash by obtaining a higher loan-to-value amount in favorable terms.
What credit tenant lease terms should you be aware of?
Institutional investors only offer credit tenant financing opportunities, and it does not necessarily mean that they are the ones who are now taking over the landlord’s responsibilities. Most credit tenant leases have three net terms. 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. These obligations are directly the responsibility of the tenant, so no landlord will have to carry this kind of burden. 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.