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 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. 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 are the basics of 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-. 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, how do you get credit tenant loans?
If you are a landlord that has a credit tenant, then you are eligible in availing long-term loans to refinance or purchase a particular property. 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. Owners of properties who have an investment grade rating can put their real estate property in the market for investors, and can then lease them again. 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 are credit tenant lease terms?
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. Typically, credit tenant leases comprise three net terms. This means that credit tenants are the ones responsible in paying insurance, taxes, 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. From the standpoint of both the investor and the landlord, credit tenant lease terms function the same as 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.