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 get to receive an investment grade rating from any rating agency, and they are usually big, reputable companies. 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 is investment grade rating all about?
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 should you know about 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. A non-recourse structure of loan is guaranteed to the landlord in the process. This simply means that there is no risk of personal liability because this kind of loan greatly depends on the value of the lease.
What is the significance of sale leaseback transactions?
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. In comparison to typical commercial real estate loans, property owners can now optimize their loan-to-value amount and increase their cash, thereby favoring them more.
What credit tenant lease terms should you be aware of?
Institutional investors only offer credit tenant financing opportunities, and it does not necessarily mean that they are the ones who are now taking over the landlord’s responsibilities. 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. 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. 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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