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 get to receive an investment grade rating from any rating agency, and they are usually big, reputable companies. 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?
With investment grade ratings, credit tenant lenders will be able to determine if the tenant can get loans and sell them to other investors. Investment grade simply means that you have reached 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. The industry of credit tenant financing also includes the participation of sates and cities.
So, what are 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. 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?
Direct financing is made possible on the part of the credit tenants if they get themselves involved in sale leaseback transactions. 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. Opposite with the typical commercial real estate kind of loan, any property owner can increase their cash by obtaining a higher loan-to-value amount in favorable terms.
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. 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 should be based upon the entire lease duration. All of these obligations greatly rely upon the tenant, meaning this burden is no longer a responsibility of the landlord. 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.