Lessons Learned from Years with Investments

The Advantages of Getting 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. 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. 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 are the basics of investment grade rating?

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-. 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 participating in this credit tenant financing industry.

So, what are 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. A non-recourse structure of loan is guaranteed to the landlord in the process. 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. 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. 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. All of these obligations greatly rely upon the tenant, meaning this burden is no longer a responsibility of the landlord. From the standpoint of both the investor and the landlord, credit tenant lease terms function the same as 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.

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