Credit Tenant Lease (CTL) Loans – Lower Overall Costs When Sponsors Borrow From Portfolio Lenders

Credit tenant lease (CTL) finance is an investment banking solution for the capital needs of single tenant, net lease real estate investors. Specialized lenders, in effect, turn triple net leases into bonds and use the proceeds from the bond issue to fund a commercial mortgage loan. Credit tenant lease loans tend to be long-term (co-terminus with the lease), fixed rate, non-recourse, self amortizing loans, and because they are usually assumable by a subsequent owner they are often the last loan a property will ever need.

CTL is an efficient and dependable method of financing the purchase or refinance of net leased property but it is not inexpensive. The investment banking aspects and the necessity of adhering to securities laws causes the fees and expenses associated with CTL to be somewhat higher than those associated with conventional lending.

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One way for borrowers to lower the overall cost of securing a CTL loan is to utilize CTL portfolio lenders. These unique lenders underwrite and fund CTL loans with the intention of holding them in their own portfolios for their own benefit for the entire life of the loan.

Lower Rates

Portfolio lenders tend to price CTL loans like bonds rather than like mortgages. Sponsors will find that rates are very reasonable for long term, fixed rate debt. The rates will be set based upon the going rate of an (interpolated) US Treasury Bond plus a very small premium.

Lower Legal Fees

The fixed income funds that have a sophistication level high enough to issue, fund and hold CTL loans tend to be very large, often with assets in the tens of billions. More often than not these funds employ “in-house” counsel that can and do save borrowers thousands in legal fees.

• Fewer Middle Men

Traditional CTL finance uses brokers, bankers, bond traders, third party rating services and independent trustees to get deals done. A portfolio lender cuts way down on the middle men and, because they will not be offering bonds in the market, do not require independently verified credit ratings or National Association of Insurance Commissioners (NAIC) ratings. Less people to compensate can mean big savings to borrowers.

Time is Money

By definition, portfolio lenders don’t need to rely on third party service providers and can move a loan through the process very quickly and efficiently. Portfolio CTL lenders can fund deals 15-20% faster than private placement lenders can, closing loans in as-little-as 45 days from start-to-finish. In NNN real estate investing time really is money the sooner a buyer can get into a deal the more rent they will collect.

Private placement bond CTL financing is an excellent method of financing single tenant, net lease investments and our firm will continue to offer it. However, when a deal qualifies (portfolio lenders have strict qualification criteria and a slightly higher debt-service-coverage-ratio [DSCR] ) sponsors and investors will be well served by applying to a portfolio lender.

The author of this post, Glenn Fydenkevez, is President of MasterPlan Capital LLC. He has over 25 years in the finance industry and has been an officer at one of the world’s largest investment banks. Feel free to contact him with any questions you may have about CTL finance or other aspects of commercial real estate finance.

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