Some Things You Should Know About 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 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 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. 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 major participants of the credit tenant financing industry.
So, how do you get credit tenant loans?
With the aid of a credit tenant, any landlord can now refinance or purchase a property by being eligible in processing long-term loans. A non-recourse structure of loan is guaranteed to the landlord in the process. This simply means that there is no risk of personal liability because this kind of loan greatly depends on the value of the lease.
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 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. There are three net terms that comprise credit tenant leases. 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. 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.