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. 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 are the basics of 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. Investment grade simply means that you have reached a minimum rating of BBB-. 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, 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. Owners of properties who have an investment grade rating can put their real estate property in the market for investors, and can then lease them again. 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?
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 will have to be parallel with the duration of the lease. All of these obligations greatly rely upon the tenant, meaning this burden is no longer a responsibility of the landlord. From the point of view of both the investor and the landlord, credit tenant lease terms are akin to a 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.
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