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. Investment grade tenants offer landlords numerous financing options they can choose from.
Investment grade tenants are usually companies that have their very own investment grade rating that is made by a specific rating agency. If a credit tenant rents a property, instead of lenders providing financial assistance based on the landlord’s credit or the value of the real estate, they depend more upon the tenant as well as the value of the lease payments he or she will be paying in the future.
So, what are the basics of 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 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. States and cities are also major participants of the credit tenant financing industry.
So, what are 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.
What are sale leaseback transactions?
Direct financing is made possible on the part of the credit tenants if they get themselves involved in sale leaseback transactions. 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. 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.
Some credit tenant lease terms you should know about
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. Typically, credit tenant leases comprise three net terms. This means that credit tenants are the ones responsible in paying insurance, taxes, and maintenance costs. The loan terms must be in tandem 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 standpoint of both the investor and the landlord, credit tenant lease terms function the same as corporate bond. What they just basically do during the entire duration of the real estate project is not get involved actively and just collect the check.