Some Things You Should Know About 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. 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 basically implies a minimum rating of BBB-. 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?
Long-term loans to refinance or purchase the property a certain landlord wants is now made possible if they have a reliable credit tenant. The landlord will then get to avail of a loan that has a non-recourse structure. In simple terms, landlords will not have to face any personal liability threats because the terms of the loan is based on the lease value.
What is the significance of sale leaseback transactions?
When credit tenants get themselves involved in sale leaseback transactions, they can immediately 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 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. 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 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. Quite simply, all they have to do during the real estate project process is just collect checks and not get themselves involved actively.