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Some Things You Should Know About Investment Grade Tenants

If you are an owner of several properties that are for rent, then it is a must that you hire investment grade tenants. 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. 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?

With investment grade ratings, credit tenant lenders will be able to determine if the tenant can get loans and sell them to other 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 major participants of the 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. 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. 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 are credit tenant lease terms?

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 should be based upon the entire lease duration. These obligations are directly the responsibility of the tenant, so no landlord will have to carry this kind of burden. From the standpoint of both the investor and the landlord, credit tenant lease terms function the same as 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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