The Advantages of Getting Investment Grade Tenants
If you own a property and offer it for rent, then you should consider seeking investment grade tenants. Landlords get to benefit from investment grade tenants because they offer a lot of financing options.
Investment grade tenants get to receive an investment grade rating from any rating agency, and they are usually big, reputable companies. 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?
Investment grade ratings are the basis of credit tenant lenders to secure loans for the tenant as well as sell them to investors. Getting a minimum rating of BBB- is what investment grade is all about. The majority of investors only choose to invest in products and bonds that are being back up by tenants with investment grade such as Home Depot and Walgreens. States and cities are also participating in this 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. 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?
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?
Just because institutional investors offer credit tenant financing, this does not automatically mean that they also take on the responsibilities often imposed when one is a landlord. Typically, credit tenant leases comprise three net terms. This simply means that credit tenants should shoulder whatever insurance, maintenance costs, and taxes they must pay. The loan terms will have to be parallel 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. On the part of both the investor and the landlord, credit tenant lease terms have the same function as that of a 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.