Triple net lease (NNN) real estate investing is intriguing to many investors who seek dependable monthly income from their holdings. Aside from paying your mortgage, NNN real estate has no landlord responsibilities; you won't be called in the middle of the night to unclog toilets and you won't face huge repair bills if the roof leaks. You will, however, receive a rent check month-in and month-out.
The popularity of NNN investing has given rise to a specialized financing platform called credit tenant lease (CTL) lending. CTL is simply a method of monetizing the present value of a NNN lease by issuing private placement bonds that are backed by the income that the lease guarantees. The proceeds from the sale of those bonds funds a commercial mortgage to the property owner.
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The concept behind CTL loans is simple and, to the borrower, the process is hardly different from conventional borrowing. However, behind the scenes, the actual transaction involves many moving parts and is quite intricate.
As an expert in structuring CTL loans for the purchase, refinance and construction of real estate that is to be NNN leased to credit worthy tenants, I've been asked many times to explain CTL in simple terms. Below are straight-forward answers to some of the most common CTL questions.
What Properties Qualify for CTL?
Retail, office and industrial buildings. Tenant must be "investment grade" (BBB-S&P, Baa3-Moody's). Lease must be double (NN) or triple (NNN) net leased. Lease must be long-term (12 or more years) Lease must be standard (no strange abatement, assignment, or termination provisions) Real estate must be "stand alone" (separate tax parcel).
Who are the most popular "credit tenants"?
US Government Agencies (GSA) such-as The Social Security Administration, The Department of Defense, The Department of Homeland Security, The Department of Justice and The US Postal Service. Drug store chains such-as Walgreens and CVS/Caremark. Big box retailers such-as Wal-Mart, Target and Khols. Home improvement giants such-as Home Depot and Lowes. Many others to numerous to list.
What are the Differences between Conventional Commercial Mortgages and CTL loans?
CTL loans consider the lease rather than the real estate as the primary collateral. CTL loans are non-recourse. CTL loans are long-term, fixed rate, self amortizing loans. CTL loans can utilize high leverage (100% LTV, 100% LTC, low DSCR) CTL finance is an investment banking transaction rather than a straight loan.
Can I get a CTL loan at my local bank or from my regular mortgage broker?
No, CTL lending is a complex form of investment banking and is only done by firms with specialized knowledge and experience.
How long does it take to get a CTL loan?
The CTL process can be completed in as-little-as 45 days from start-to-finish but 60 days is standard.
Are CTL loans more expensive than bank loan?
Most of the expenses associated with CTL lending are the same as those associated with any commercial real estate mortgage loan; however there are some significant costs that are unique to CTL finance. Because CTL loans tend to be long-term, fixed rate, fully amortized loans with terms that mirror the lease terms (co-terminus) they are, in-the-long-run, less expensive than regular loans because you do not have to pay the costs of refinancing every 3, 5, 7 or 10 years or worry about coming up with a massive balloon payment.
What do I need to provide to the banker to get a CTL quote?
Type of building and building address. Name of NNN tenant. Annual rent collected. Term left on lease. Purpose of loan.
Credit tenant leas financing is a fast, dependable and efficient way to finance NNN real estate deals. Once the basics of CTL are understood and an investor builds a relationship with a reliable CTL banker, they will enjoy great potential for investing success.
Credit Tenant Lease (CTL) Lending - A Banker Answers 7 Common Questions LOWES ONLINE APPLICATION
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