Archive for March, 2011

Credit Tenant Lease (CTL) Financing for Single Tenant, Triple Net (NNN) Real Estate Investing – The Perfect Capital Solution for a Unique Real Estate Investment

March 30, 2011

Click Our Logo to Apply for A CTL Loan

By Glenn Fydenkevez – President, MasterPlan Capital LLC

There are two principle reasons to invest in commercial real estate; current income today, and capital appreciation over time. For real estate investors primarily concerned with income, triple net (NNN) real estate investing has proven to be a very attractive option.

Single Tenant NNN Investing

In the world of commercial real estate the initials “NNN” refer to the fact that a parcel of real estate is leased to a tenant on a “triple net” basis. In-short NNN owners have virtually no landlord responsibilities. They don’t have to plow the driveway when it snows, repair the roof if it leaks or fixed clogged toilets when visitors use too much TP. A NNN property owner’s only responsibility is to collect the rent and pay the mortgage; everything else is falls to the tenant.

Savvy real estate investors and Wall Street Investment bankers understand that owning NNN leased real estate is more closely related to fixed income investing than it is to traditional real estate investing. With this knowledge it’s a short hop to credit tenant lease (CTL) finance.  Through the magic of investment banking, specialized CTL bankers turn NNN leases into bonds and turn those bonds into cash.

Credit Tenant Lease Finance (CTL)

The concept behind CTL is easy to understand even while the actual CTL process is quite intricate. First, mortgage specialists originate a commercial mortgage loan. Next, investment bankers create and issue private placement bonds that are directly secured by the NNN lease on the target property. Finally brokers and bond traders sell the bonds to institutional fixed income investors like insurance companies, commercial banks, trusts, and pension funds. The proceeds from the bond sale are used to fund the mortgage and go to the borrower at closing. The entire loan is administered by an independent trustee throughout the life of the deal.

The investors who buy CTL bonds depend on the income the bonds produce, and the bonds, in turn, depend on the income guaranteed by the NNN lease that stands behind it. It follows that the financial strength of the tenant is paramount. To qualify for CTL financing the tenant must be considered “investment grade”. Usually this means that they need a high credit rating from one of the major rating agencies. CTL finance companies generally require tenants to have a BBB- (or higher) rating from Standard & Poors or a Ba1 (or better) from Moody’s before they will underwrite a CTL loan.

CTL finance and NNN investing work together like they were made for each other because in-fact they were. CTL is not the only way to finance single tenant, NNN real estate but it is definitely the most synergetic.

High Leverage

CTL bankers make no restrictions on loan-to-value (LTV) or loan-to-cost (LTC) when deciding how much money they will lend against a particular lease. 100% financing and even cash out financing is realistically possible when buying, building or refinancing with CTL. Bankers only require that the rent collected covers the mortgage payment. Debt-service-coverage (DSCR) ratios are exceedingly low, ranging from 1.05x right down to 1x. There is no question that CTL offers the highest loan balances in the commercial mortgage industry. (high LTV / LTC, and cash-out refi are almost unheard of in the realm of institutional financing in today’s credit environment).

Fixed Rate, Long Term, Fully Amortized

The majority of CTL loans are fixed rate, self amortizing loans with a term “coterminous” with the term of the lease (The loan is paid off when the lease expires). Long term, fixed rate mortgages, while commonplace in residential finance, are rare indeed in the commercial property sector. Long, stable loans allow sponsors to budget for the long haul. Mortgage payments don’t change and there are no looming balloon payments to plan for. Plus investors avoid the expense and hassle of refinancing every 3, 5,7 or 10 years.

Non-Recourse

The primary security that backs a CTL loan is the monthly income that the NNN lease produces. CTL bankers will not require borrowers to personally signature guarantee each loan, nor will they aggressively pursue the borrower if the tenant defaults. CTL lending is based on the strength of the tenant and the structure of the lease, not the wherewithal of the landlord.  

Assumable

Virtually all CTL loans are assumable by a subsequent buyer for a small (usually 1%) fee. So, not only will an original owner never be forced to refinance but, if they decide to sell, they can offer their buyer the benefits of a CTL loan for less then the cost of a new mortgage.

Streamlined Process

We’ve said that CTL lending is highly specialized and intricate, and it is, but it is also standardized. If a deal meets CTL criteria, the funding can happen very quickly and very efficiently. CTL loans have been known to close, from-start-to-finish, in as little as 45 days and it is rare for a loan to take more than 60 days to underwrite, fund and close. NNN investors can go from decision to closing table in about a third of the time it takes to close a bank loan.

Income and Tax Planning

Income is the main reason individuals and institutions buy single tenant, NNN, credit tenant real estate, but it is by no means the sole reason. Sophisticated real estate professionals acquire NNN assets for other reasons as-well. Savvy investors use NNN to take advantage of the unique tax benefits that real estate can provide. By adjusting the amount of leverage they use they can manipulate the amount of cash-flow a building produces and make the income and deprecation tax laws work for rather than against them. NNN is also often used as a vehicle for 1031 exchanges when investor’s desire continued income without having to manage a property or pay large capital gains taxes on a recent sale.

Construction and Development

Builders and developers like NNN real estate as-well, because they know they can stick to construction of a building without ever worrying about managing it. And with CTL financing readily available, they have the confidence that comes with knowing they can cash-out whenever they want.

Cash-out Refinance

One of the most attractive aspects of CTL finance is that it allows credit tenant property owners to execute cash-out refinance loans. As we mentioned above there are no LTV restrictions on CTL loans. If an investor bought right and has equity in a NNN asset, they can pull out up-to 100% of its value. Refinancing with a self amortizing CTL loan avoids all the fuss, bother, expense and time associated with selling, yet still allows owners to realize full value.

A Great Fit

For the sophisticated, income orientated real estate investor there is no better asset class than single tenant, investment grade, NNN real property. And for NNN investors there is no method of financing better suited to NNN than CTL.  

About the Author: Glenn Fydenkevez is President of MasterPlan Capital LLC. He has over 20 years Wall Street experience and has been an officer at one of the worlds largest investment banks. About MasterPlan Capital LLC: MasterPlan Capital is a privately held commercial mortgage lender and real estate investment banking firm offering private and institutionally funded commercial mortgage loans, credit tenant lease (CTL) financing and other services to property owners and developers in the lower 48 states.

To get answers to your questions about CTL lending or other aspects of commercial real estate finance, call MasterPlan Capital at:                                                    1-800-727-5140 xtn 101

CTL / Credit Tenant Lease Loans – Here are the 6 Things Needed to Qualify

March 25, 2011

Credit tenant lease (CTL) financing is a highly specialized form of investment banking designed specifically to fund the purchase, refinance or development of single tenant, triple net (NNN) leased real estate. CTL is a unique lending platform where the buildings lease rather than the real estate itself is the primary collateral backing the loan.

Specialty Investment banking firms originate a commercial mortgage loan then issue private placement bonds that are directly secured by the income that the lease guarantees. The bonds are sold to institutional fixed income investors and the proceeds are used to fund the mortgage. The transaction is administered by a third party trustee throughout the life of the loan.

A CTL loan is often the perfect capital solution for savvy NNN real estate investors who are building, buying or pulling equity out of single tenant real estate holdings. CTL is very desirable, long-term, high leverage, fixed rate, non-recourse financing. But not every deal qualifies for CTL. Here are 5 key factors that must be present in-order for a deal to qualify for CTL:

• Stand Alone Real Estate

The real estate must be separate and distinct (from a legal standpoint) from its surroundings. Detached single purpose structures work best but any real property that is classified as a separate tax parcel should qualify. So a drug store inside a mall won’t work while that same drug store next to, or even attached to a mall might.

• Single Tenant

The building (or land, in-the-case-of a ground lease) must be leased to a single tenant who is alone responsible for paying the rent each month.

Click Our Logo to Apply for A Credit Tenant Lease (CTL) Loan

• Investment Grade Tenant (BBB- / Ba1 or better)

The bonds that fund CTL loans are sold to institutional investors. Many of them are highly regulated entities such as insurance companies, pension funds, commercial banks or trusts; they have strict investment guidelines that they must adhere to. To qualify for CTL a buildings tenant must be credit worthy or “investment grade”. Generally, to be considered for CTL financing the tenant must have a credit rating of BBB- or higher by Standard & Poors or Ba1 by Moody’s.

• Triple Net (NNN) Lease

The property needs to be leased on a triple net (NNN) basis. Although some double net (NN) deals might qualify, NNN is optimum. In-short, there can be no significant landlord responsibilities included in a lease if it is expected to qualify for CTL financing.

• Long-Term Lease (10+ years)

CTL loans are fully amortizing loans with terms that are “coterminous” with the lease. Short leases would mean rapid amortization which would mean mortgage payments too big to make sense. Realistically, there has to be a least 10 years left on a lease to make a CTL loan plausible.

• Large Loans ($3MM+)

Over the long run CTL lending can be much less expensive than conventional borrowing because sponsors don’t have to refinance every 3, 5, 7 or 10 years or come up with large balloon payments every time a loan term expires. However, the initial expenses involved in closing a CTL loan do tend to be a bit higher. For this reason CTL lending is suitable for large loans and doesn’t work well for small balance lending. Our firm, for example, will not consider CTL for anything less than $3,000,000.00. That-being-said; because there are no restrictions on loan-to-value (LTV) CTL bankers can offer loans up-to 100% of value, so larger loans on big deals or large portfolios of NNN real estate, are not necessarily out of reach and are, in-fact, attainable for many real estate investors.

If a single tenant NNN real estate transaction meets these criteria a CTL loan can fund and close in as little as 45 days (60 days is typical). If the transaction fits, CTL is a fast and efficient capital solution for buyers, owners and builders alike.

— For more information on CTL lending or to apply for a credit tenant lease loan, please visit MasterPlan Capital LLC online ( Click here: Commercial Mortgage Lender )or call us at 1-800-727-5140 —

Very Interesting Chart on Gas Prices – Bush vs Obama

March 17, 2011

Gas Prices Under President Bush and President Obama

CRE Pros Use Commercial Mortgage Brokers; Here’s Why

March 4, 2011

When a commercial real estate investor needs a mortgage he might be tempted to submit his application directly to a lender rather than pay a commercial mortgage broker to source the loan. The potential advantage of going direct is, of course, the borrower can avoid paying the broker a commission. But there are some good reasons to use a good broker.

Lenders Give Brokers Preferential Treatment

Established commercial mortgage finance professionals can easily receive 100 financing requests a month. While a single borrower might submit a few applications a year to any given lender, a single broker has the potential to submit several dozen applications in the same year. Lenders will give deference to powerful brokers because a good broker is a much better client to them than a good borrower is.

Brokers Know how to Package a Deal

Commercial mortgage brokers are professionals. They know exactly what lenders need to see in-order for them to make a decision. Lenders are busy; they don’t appreciate loan packages that have too much or too little information. The best brokers give lenders the right information in the right format. Successful brokers have experience writing executive summaries that get the attention of funding sources, and they know how to present an application for the best chance of approval.

Brokers Know Who’s Closing Deals (And Who’s Not)

Keeping in mind that intermediaries, like brokers and agents, don’t get paid anything unless a loan closes, it follows that brokers monitor the various lending policies of banks and other institutions. They know which lenders are funding loans and which ones are not, and they won’t waste time submitting a deal to a lender they know won’t close it. Further, they know the specific property type each lender prefers or specializes in. Brokers submit hotel loans to specialty hospitality lenders and apartment house loans to firms that are proficient in the multi-family niche. Many lenders won’t even consider gas stations or dry cleaners, some won’t do restaurant loans. Some lenders hate small balance loans other lenders love small loans. It really pays to know just where to apply, tremendous amounts of time, money and emotional energy can be saved.

Brokers Vouch for the Borrower

It takes significant amounts of time for a loan agent to review a deal, collect information, prepare an application, submit the package to lenders and then do the necessary follow up. Busy commercial mortgage brokers simply don’t have time to accept and originate every loan request that comes across their desk. They understand that weak deals will be rejected and time spent on them will have been wasted. When a lender receives an application from a trusted broker they realize that the deal has already been scrutinized by a pro. When a good broker takes your loan to a bank he is, in effect, vouching for you, he’s already screened your credit worthiness and crunched the numbers. Lenders look at brokered loans as having the implied endorsement of the broker, if the broker is well respected that can be a powerful influence.

Brokers Provide an Advisory Role

Like any professional providing business services, a commercial mortgage broker wants repeat business and wants client referrals. They have every incentive to, not just find you a loan, but find you the best rates and terms from a lender that will treat you with respect. The best loan agents are really trusted advisors, advocating for you and advising you so you’ll get the best possible loan for your building or project. If they are successful and you become a satisfied customer, you are likely to return to them for your next loan or refer them to your friends.

Brokers Advocate for Their Clients

To be successful in the high stakes world of commercial real estate finance mortgage brokers do more than just submit loan applications, they sell deals to lenders. They emphasize a file’s strong points and downplay its weak points. They talk up the borrower and highlight past successes. They can give well reasoned, professional answers to the lenders objections. The broker sits on the same side of the table as the borrower and is an authoritative advocate for his client.

In Short; Commercial Mortgage Brokers add Value

The true professional in commercial real estate finance is an expert who has valuable relationship with quality funding sources that include banks, Wall Street investment houses, insurance companies and private lenders. They know the right place to send the loan. The broker speaks the same language as the lender and has a great depth of industry knowledge. Good brokers catch mistakes before lenders see them and clean up potential messes that could, otherwise, kill a loan. Billions of dollars worth of commercial real estate loans are brokered each year. Some of the most sophisticated investors and developers in the world routinely retain brokers to secure financing for them, even on deals measuring in the hundreds of millions. In simple terms; commercial mortgage brokers add value to a deal because they increase the chances of actually getting it closed. That’s worth a point or two.

MasterPlan Capital L.L.C. – Apply For a Commercial Mortgage Loan Online at: www.masterplancapital.com – Simple (1 page) Commercial Mortgage Application. Get an Answer the Next Business Day. All Inquires Receive Prompt, Professional and Courteous Service.

The author, Glenn Fydenkevez is President of MasterPlan Capital, a commercial real estate investment banking firm providing debt placement, credit tenant lease (CTL) financing, equity financing and asset management services to commercial property owners, investors and developers, nationwide. Mr. Fydenkevez has more than 20 years experience in finance and has been an officer at one of Wall Streets largest investment banks.