What Are the Benefits of Hiring Investment Grade Tenants?
If you are an owner of several properties that are for rent, then it is a must that you hire investment grade tenants. Investment grade tenants provide landlords with several financing choices.
Investment grade tenants are usually companies that have their very own investment grade rating that is made by a specific rating agency. If a credit tenant rents a property, instead of lenders providing financial assistance based on the landlord’s credit or the value of the real estate, they depend more upon the tenant as well as the value of the lease payments he or she will be paying in the future.
So, what is investment grade rating all about?
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 basically implies 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. The industry of credit tenant financing also includes the participation of sates and cities.
So, what are credit tenant loans?
Long-term loans to refinance or purchase the property a certain landlord wants is now made possible if they have a reliable credit tenant. 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.
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. 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 credit tenant lease terms should you be aware of?
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. Most credit tenant leases have three net terms. This simply means that credit tenants should shoulder whatever insurance, maintenance costs, and taxes they must pay. The loan terms must be in tandem with the duration of the lease. 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. Quite simply, all they have to do during the real estate project process is just collect checks and not get themselves involved actively.