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 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 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-. 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. Such loans can follow a non-recourse structure for the sake of the landlord. This basically implies that the landlord will not be at risk of personal liability because these loans depend more on the lease value.
What are sale leaseback transactions?
Direct financing is made possible on the part of the credit tenants if they get themselves involved in sale leaseback transactions. 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.
Some credit tenant lease terms you should know about
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 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 standpoint of both the investor and the landlord, credit tenant lease terms function the same as 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.
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