What Are the Benefits of Hiring Investment Grade Tenants?
If you happen to own a property that is for rent, then you know how important investment grade tenants are. 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 is 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. 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?
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?
When credit tenants get themselves involved in sale leaseback transactions, they can immediately do direct financing. 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. 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.
Some credit tenant lease terms you should know about
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 must be in tandem with the duration of the lease. 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. Quite simply, all they have to do during the real estate project process is just collect checks and not get themselves involved actively.