Credit Tenant Lease: or Credit Tenant Loan (“CTL”)
Investors looking to maximize the loan proceeds when financing a commercial property supported by a long-term lease from a NNN Credit Lease Tenant that carriers investment grade public credit rating from Standard & Poors; Stand & Poors web site and/or from Moody’s Investors Service; Moody’s web site might consider CTL financing.
Here are some of the benefits of Credit Tenant Leases:
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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 NNN net credit tenant lease structure you are limited to the value of the real estate and further constrained by the items listed below.
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The Debt-Service-Coverage Ratio (“DSCR”) can be as low as 1.00x with bondable and NNN credit tenant 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. Therefore, the DSCR might be closer to 1.05x or 1.10x.
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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 CTL transaction you must be able to fully amortize the loan over the primary lease term. Without having some inside such as you developed the property and have sweat equity in the project it might be difficult to finance nearly all of the purchase price. We have not seen but a few projects in recent months did not require substantial down payment. It is best to plan on putting down at least 25% from most of the transaction we have seen in recent years. Most of our clients are in a 1031 Exchange buying a triple net lease property.
Interest Rates for Triple Net Lease Properties:
We update our web site every business day and can provide you with sample interest rates Commercial Real Estate Interest Rates.
Investment Grade Credit Rating:
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.
Be sure to check the credit ratings it is important to note the trend or forecast. For example, if S&P shows a rating of BBB- (low level to still be 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 instance, 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. Therefore, when considering an investment in a property with a NNN Credit Tenant Lease look into the credit ratings.
Residual Value Insurance:
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 find sample 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. 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 available on the Tenants listed below that carry investment grade ratings.
Tenant Name S&P ratings except as noted
7-Eleven, Inc. A1-Moodys
A&W BB
Advance Auto Parts, Inc. BBB-
Arbor Drug Store BBB+
Auto Zone, Inc. BBB
Bahama Breeze BBB
Bank of America A
BB&T Corp A-
Bed Bath & Beyond, Inc. BB+
Bed, Bath & Beyond BBB
Big Lots, Inc. BBB-
BP America AA-
Bridgestone Corporation A2-Moodys
Brinker International BBB-
Capital One Financial Corp BBB+
Chase Bank A+
Chevron Corporation AA-
Circle K Stores BBB
CitiBank A+
Conoco A-
Costco Companies A+
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+
Exxon AA+
Family Dollar Stores, Inc. Baa3-Moodys
FedEx BBB
Fifth Third Bank BBB
Food 4 Less BBB
Food Lion BBB
Fred Meyer BBB
Fresenius Medical Care AG BBB-
Fresh & Easy A-
Fresh & Wild A+
Giant Foods BBB
Harris Teeter BBB
Home Depot, Inc. A
Homegoods Stores BBB-
J.P. Morgan Chase A+
Key Bank BBB+
KFC BB
Kohl’s Corporation BBB-
Koninklijke Ahold N.V. BBB
Kroger BBB
La-Z-Boy N/R
Long John Silvers, BB
Long’s Drug Store BBB+
Lowe’s Companies A-
McDonald’s Corporation BBB+
Mobile AA+
Nordstrom BBB+
Olive Garden BBB
O’Reilly Automotive, Inc. BBB
Owens Corning BBB-
Pep Boys BBB-
Phillips Petroleum A-
Pizza Hut BB
PNC Bank A
Polo Ralph Lauren BBB+
Publix Super Markets, Inc. A
Rare Hospitality BBB
Raytheon Company A-
Revco Drug Stores BBB+
Ross Stores BBB
Royal Dutch Petroleum A+
Safeway BBB
Sam’s Club AA
Shell Group A+
Sherwin-Williams Company BBB
Smith’s BBB
Staples BBB
Starbucks Corporation BBB+
Taco Bell BB
Target Corporation A
TD Bank AA-
Texaco AA-
TJX Companies, Inc. BBB-
T-Mobile BBB+
Total SA A+
Unocal AA-
US Bancorp A+
Valero Energy Corp. BBB
Verizon BBB+
Walgreen Co. BBB-
Wal-Mart Stores, Inc. AA
Walt Disney Co. A
Wells Fargo AA-
Whole Foods A+
Wild Oats A+
Winners BBB-
Yum! Brands, Inc. BB
Below are Tenants in high demand from our lenders.
| Quality Tenants without ratings | No Public Ratings | MAX LTV | MAX Amortization |
| Aaron Rents | N/R | 75.0% | 15 |
| Aldi, Inc. | Private | 75.0% | 20 |
| BJ’s Restaurants, Inc. | N/R | 75.0% | 15 |
| CarMax, Inc. | N/R | 75.0% | 20 |
| Casey’s General Stores | N/R | 75.0% | 15 |
| Cheesecake Factory, Inc. | N/R | 75.0% | 15 |
| Chick-Fil-A | Private | 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 |
| Panda Express | Private | 75.0% | 15 |
| Panera Bread Company | Private | 75.0% | 15 |
| Quik Trip, Inc. | N/R | 75.0% | 15 |
| RaceTrac Petroleum, Inc. | Private | 75.0% | 15 |
| Royal Farms | Private | 75.0% | 15 |
| Sheetz | Private | 75.0% | 15 |
| Spouts Farmers Market, Inc. | NR | 65.0% | 15 |
| Texas Roadhouse, Inc. | N/R | 75.0% | 15 |
| Tractor Supply | N/R | 75.0% | 15 |
| Trader Joe’s | Private | 75.0% | 20 |
| Two Farms, Inc. | Private | 75.0% | 15 |
| Ultra Salon | N/R | 75.0% | 15 |
| Wawa, 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.
Mike Caffrey
Phone: (913) 402-7077
Email: [email protected]
On our web site you can read about specific loan products: www.caffreyloans.com/loan-products, offered by Freddie Mac, Fannie Mae, HUD/FHA, Commercial Mortgage Back Securities (CMBS) and other loan products. Want more details on sample interest rates for apartment check out Interest Rates for Apartment Loans also on our web site: www.caffreyloans.com/apartment-loans.
Have a question please contact
Mike Caffrey
Telephone: (913) 402-7077
[email protected]
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