Maximize Loan Proceeds:
Investors looking to maximize the loan proceeds when financing a commercial properties supported by a long term lease from a tenant that carriers investment grade public credit rating from Standard & Poors https://www.standardandpoors.com/en_US/web/guest/home and/or from Moody’s Investors Service https://www.moodys.com/ might consider Credit Tenant Lease loans.
Here are some of the benefits of Credit Tenant Leases:
Higher leverage or loan to value (“LTV”), with constraints up to 100% of the value. A typical commercial real estate lender will want 20% to 35% cash down. Under a Credit Tenant Lease loan structure you are limited to the value of the real estate and further constrained by the items listed below.
The Debt-Service-Coverage Ratio (“DSCR”) can be as low as 1.00x with bondable and NNN lease terms. When the landlord has certain obligations or expenses such as maintenance of the roof and parking lot the lender will require some additional cash flow going back to the landlord to address these landlord obligations and thus the DSCR might be closer to 1.05x or 1.10x.
The term and amortization can go as high as 30-years.
How much down payment is required?
Does this mean you could borrow enough money to finance 100% of the purchase price of a single tenant property supported by a long term lease from a tenant that carrier’s public investment grade credit ratings? Theoretically yes. However, to qualify as a true Credit Tenant Lease loan transaction you must be able to fully amortize the loan over the primary lease term. Therefore, without having some inside such as you developed the property and has sweat equity in the project we have not seen a project that did not require substantial down payment. It is best to plan on putting down at least 20% from most of the transaction we have seen in recent years.
What are the investment Grade Credit Ratings:
As mentioned above the Tenant must carry investment grade credit ratings to qualify as a CTL transaction. Moody’s Investment Grade Ratings are Baa3 and above. Standard and Poors (S&P) Investment Grade ends with the BBB- rating. Non-investment grade ratings are Ba1 for Moody’s and below and BB+ for S&P and below.
When checking the credit ratings it is important to note the trend or forecast. For example, if S&P shows a rating of BBB- (this is the lowest level still considered investment grade) and reports a “negative” trend this tenant might be subject to a downgrade to the next level BB+ which is no longer investment grade. For example, look what has happened to giant companies such as Sears and how technology impacted Blockbuster. Both of these companies carried investment grade ratings at one time.
Residual Value Insurance (“RVI”):
It might be possible to borrow additional dollars over what the lease might be able to retire over the remaining term of the lease (we cannot use lease option extensions that have not been officially extended by the tenant). If the balloon balance is over $1 million and the resulting loan to the dark value is 50% or less we could consider placing Residual Value Insurance to protect the lender by paying the loan off at the end of the Loan Term.
Below is a sampling of single tenants that carry investment grade credit ratings. This is by no means the complete list of all tenants, just a sampling. Also, ratings change from time to time. Be sure to update the Tenant credit ratings when considering your investment. The ratings below are mostly as of the first of 2019 calendar year.
If you need a loan on a property that is supported by a long term lease but the tenant does not have public credit ratings we can help. See the sample list of tenants that lenders are actively lending on. CTL structures are available on the Tenants listed below.
List of many Investment Grade Tenants:
|Tenant Name||S&P ratings except as noted|
|Advance Auto Parts, Inc.||BBB-|
|Arbor Drug Store||BBB+|
|Auto Zone, Inc.||BBB|
|Bank of America||A|
|Bed Bath & Beyond, Inc.||BB+|
|Bed, Bath & Beyond||BBB|
|Big Lots, Inc.||BBB-|
|Capital One Financial Corp||BBB+|
|Circle K Stores||BBB|
|CVS Caremark Corporation||BBB+|
|Darden Restaurant, Inc.||BBB|
|Delhaize Group S.A.||BBB|
|Dollar General Corporation||BBB|
|Dollar Tree Stores, Inc.||BBB-|
|Eckerd’s Drug Store||BBB+|
|Family Dollar Stores, Inc.||Baa3-Moodys|
|Fifth Third Bank||BBB|
|Food 4 Less||BBB|
|Fresenius Medical Care AG||BBB-|
|Fresh & Easy||A-|
|Fresh & Wild||A+|
|Home Depot, Inc.||A|
|J.P. Morgan Chase||A+|
|Koninklijke Ahold N.V.||BBB|
|Long John Silvers,||BB|
|Long’s Drug Store||BBB+|
|O’Reilly Automotive, Inc.||BBB|
|Polo Ralph Lauren||BBB+|
|Publix Super Markets, Inc||A|
|Revco Drug Stores||BBB+|
|Royal Dutch Petroleum||A+|
|TJX Companies, Inc.||BBB-|
|Valero Energy Corporation||BBB|
|Wal-Mart Stores, Inc.||AA|
|Walt Disney Co.||A|
|Yum! Brands, Inc.||BB|
Below are Tenants in high demand from our lenders.
|Quality Tenants without ratings||No Public Ratings||MAX LTV||MAX Amortization|
|BJ’s Restaurants, Inc.||N/R||75.0%||15|
|Casey’s General Stores||N/R||75.0%||15|
|Cheesecake Factory, Inc.||N/R||75.0%||15|
|Chipotle Mexican Grill, Inc.||N/R||75.0%||15|
|Dick’s Sporting Goods, Inc.||N/R||75.0%||15|
|Grand Lux Café||N/R||75.0%||15|
|Hibbett Sports, Inc.||N/R||65.0%||15|
|Hobby Lobby Stores, Inc.||Private||75.0%||15|
|Krispy Kreme Doughnuts, Inc.||N/R||75.0%||15|
|NAPA Genuine Parts Company||N/R||80.0%||20|
|Panera Bread Company||Private||75.0%||15|
|Quik Trip, Inc.||N/R||75.0%||15|
|RaceTrac Petroleum, Inc.||Private||75.0%||15|
|Spouts Farmers Market, Inc.||NR||65.0%||15|
|Texas Roadhouse, Inc.||N/R||75.0%||15|
|Two Farms, Inc.||Private||75.0%||15|
|Weis Markets, Inc.||NR||75.0%||20|
We are here to help, call with any questions or email the details on a property you are seeking funding for.
Phone: (913) 402-7077