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 come in the form of companies that carry with them an investment grade rating that is given by any rating agency. 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 is investment grade rating all about?
It is the investment grade ratings of a tenant that help credit tenant leaders decide if the tenant can avail of loans and 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. The industry of credit tenant financing also includes the participation of sates and cities.
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. The landlord will then get to avail of a loan that has a non-recourse structure. This simply means that there is no risk of personal liability because this kind of loan greatly depends on the value of the lease.
How do you transact sale leasebacks?
Direct financing is made possible on the part of the credit tenants if they get themselves involved in sale leaseback transactions. 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. Opposite with the typical commercial real estate kind of loan, any property owner can increase their cash by obtaining a higher loan-to-value amount in favorable terms.
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. 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 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. From the point of view of both the investor and the landlord, credit tenant lease terms are akin to 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.