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 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 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 basically implies 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 major participants of the credit tenant financing industry.
So, what should you know about 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. 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.
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. 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.
Some credit tenant lease terms you should know about
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. Typically, credit tenant leases comprise three net terms. This implies that it is the responsibility of credit tenants to pay for their taxes, insurance, and maintenance costs. 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 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.
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