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 offer landlords numerous financing options they can choose from.
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?
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. 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, 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. Such loans can follow a non-recourse structure for the sake of the landlord. 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.
How do you transact sale leasebacks?
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. In comparison to typical commercial real estate loans, property owners can now optimize their loan-to-value amount and increase their cash, thereby favoring them more.
What credit tenant lease terms should you be aware of?
Just because institutional investors offer credit tenant financing, this does not automatically mean that they also take on the responsibilities often imposed when one is a landlord. Most credit tenant leases have three net terms. This implies that it is the responsibility of credit tenants to pay for their taxes, insurance, and maintenance costs. The loan terms should be based upon the entire lease duration. 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. 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.