What Are the Benefits of Hiring Investment Grade Tenants?
If you happen to own a property that is for rent, then you know how important investment grade tenants are. Landlords get to benefit from investment grade tenants because they offer a lot of financing options.
Investment grade tenants are usually companies that have their very own investment grade rating that is made by a specific 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 is 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 participating in this credit tenant financing industry.
So, what should you know about 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 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. 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 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. 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. 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.