Tenants – Getting Started & Next Steps

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. Investment grade tenants provide landlords with several financing choices.

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 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 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 participating in this credit tenant financing industry.

So, how do you get 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. This basically implies that the landlord will not be at risk of personal liability because these loans depend more on the lease value.

What are sale leaseback transactions?
When credit tenants get themselves involved in sale leaseback transactions, they can immediately do direct financing. 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?

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. There are three net terms that comprise credit tenant leases. This simply means that credit tenants should shoulder whatever insurance, maintenance costs, and taxes they must pay. The loan terms must be in tandem with the duration of the lease. These obligations are directly the responsibility of the tenant, so no landlord will have to carry this kind of burden. From the point of view of both the investor and the landlord, credit tenant lease terms are akin to a 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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