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 come in the form of companies that carry with them an investment grade rating that is given by any 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 simply means that you have reached a minimum rating of BBB-. Several investors prefer to make investments with the products and bonds being back up 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?
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 basically implies that the landlord will not be at risk of personal liability because these loans depend more on the lease value.
How do you transact sale leasebacks?
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 are credit tenant lease terms?
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. There are three net terms that comprise credit tenant leases. 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. These obligations are directly the responsibility of the tenant, so no landlord will have to carry this kind of burden. From the point of view of both the investor and the landlord, credit tenant lease terms are akin to a 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.