What Are the Benefits of Hiring Investment Grade Tenants?
If you own a property and offer it for rent, then you should consider seeking investment grade tenants. Landlords get to benefit from investment grade tenants because they offer a lot of financing options.
Investment grade tenants are usually companies that have their very own investment grade rating that is made by a specific 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?
Investment grade ratings are the basis of credit tenant lenders to secure loans for the tenant as well as 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 engage themselves in sale leaseback transactions, this implies that they can 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.
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. There are three net terms that comprise credit tenant leases. 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. 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.
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