If Uncle Sam is your tenant a credit tenant lease (CTL) banker can monetize your lease and get you a loan quickly and efficiently despite the ongoing credit crunch.
The US government and US Government agencies are among the largest renters of office and industrial space in the world. They generally sign long term leases and lease on a triple net (NNN) basis. That means no landlord responsibilities for years on end. But the best part about a Government tenant is they always, always, always pay their rent on time. Property owners who rent to the Feds can count on long-term, predictable cash-flow.
Investment bankers know that the US Government enjoys the highest possible credit rating (triple A) and Government Agencies, by extension, have what Wall Street calls an “implied triple A” rating. The Government has taxing power which means that they will never run out of money. The financial strength and stability of the Federal Government allows bankers to turn leases into cash for commercial real estate investors.
Credit tenant lease finance (CTL) is a unique and highly specialized lending platform that is designed to finance the purchase, refinance and construction of real property that is leased to the Government or other “investment grade” tenants.
A CTL banker originates a commercial mortgage loan and then creates and issues a private placement bond that is secured by the income that the NNN lease guarantees. The bond is subsequently sold by brokers and traders to fixed income investors such-as insurance companies, pension funds, endowments and even wealthy individual investors. Proceeds from the bond sale fund the mortgage loan. The whole process is administered by a third party Trustee throughout the life of the loan.
CTL is long term (co-terminus with the lease), fixed-rate, self-amortizing financing. It can also be high leverage; CTL investment banks place no restrictions on loan-to-value so 100% LTV loans and cash-out refis are possible even in today’s tightened credit environment. The rent must cover the mortgage payment and any required escrow but debt-service-coverage-ratios are exceedingly low, usually not more than 1.01. CTL offers borrowers the very highest loan proceeds in the commercial real estate industry.
The recent bad economy and choppy markets have lead to a “flight to quality”; there is virtually no limit to the demand for Government backed bonds like those CTL lenders issue. Any long term, NNN Government lease can be funded and closed in 45-60 days from start-to-finish. There is no credit crisis for investors who own buildings leased to Uncle Sam. From relatively small projects, like a new $3mm Post Office being built in your home town, to massive hundred million dollar plus Department of Defense projects, the liquidity is there to buy, refinance or develop the Government real estate.
We have seen massive amounts of stimulus spending designed to get our economy going again. All around the country new Government buildings are going up. The recently formed Department of Homeland Security is expanding rapidly. The Post Office is updating and modernizing its retail and distribution outlets. New Federal Court houses are springing up in most major cities. And the aging population has created demand for more office space for the Social Security Administration. All these are examples of opportunities for land owners who can make deals with the Feds and finance the deals with CTL loans. It’s also important to note that CTL financing works just as well with financially sound States, Municipalities and State Agencies.
The credit crunch is not over and lending is still very tight for most types of commercial mortgages, but it’s good to know that dependable sources of capital do still exist. Credit tenant lease financing for buildings, land and construction projects leased to the Government is one sector of real estate finance that is still booming.
