Why Credit Tenant Lease (CTL) Loans Have Been Closing While Traditional Lending has Faltered

Throughout the credit and liquidity crisis that started several years ago and continues today, credit tenant lease (CTL) lending has remained relatively healthy. Indeed, CTL has been a welcomed bright spot in commercial real estate finance. CTL bankers never lost their appetite for originating loans and never lacked the liquidity it takes to fund them.

Why is it that CTL finance is able to thrive while almost all other forms of lending continue to struggle? There are several factors that contribute to the resiliency of CTL.

First is the fact that CTL loans are only made against real estate that is net leased (triple net [NNN], double net [NN] or bondable) on a long term basis to a single very stable, very strong corporate tenant. To qualify for a CTL loan a building or plot of land must be net leased to what is known as an “investment grade” or “credit” tenant. A credit tenant is one that enjoys a credit rating of BBB+ or better from the rating agency Standard & Poors and/or Ba1 or better from Moody’s. Because CTL loans only deal with strong tenants there is less risk to lenders and, subsequently, deals are easier to close.

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

Another factor that contributes to the strength of the CTL market is the fact that virtually all CTL loans are non-recourse. The borrowers finances will be checked out to see if they have enough money to pay any required closing costs but borrowers are not underwritten and won’t be on the hook if a loan defaults. Because lenders are not overly concerned with the financial strength of the borrower there are less things that can crop up and derail the lending process. Basically, if the lease and the tenant pass muster a loan will close.

CTL is a very straight forward process. Experienced CTL bankers know what will work and what will not. Because the private placement bonds that fund CTL loans are sold to insurance companies, pension funds, trusts and commercial banks, there are very strict criteria for qualification with no wiggle room or discretion allowed. Most CTL lenders will be able to tell you if a deal is doable after just one reading of the lease and they only accept deals they know they can get funded. If a CTL banker issues a letter of intent or term sheet for a deal, you can count on financing with a very high degree of confidence.
The standardized nature of CTL loans means that borrowers can get a definitive yes or no very quickly, and if the answer is yes they can count on funding.

Finally, the last reason for the relative health of the CTL market is that CTL lending and net lease investing is not necessarily correlated with traditional lending or regular real estate investing.

CTL lending is, in reality, a specialized form of commercial real estate investment banking. Investment bankers that make CTL loans fund deals by creating securities and selling them to investors, not by loaning capital or selling mortgages to Fannie Mae or Freddie Mac the way banks do.

Net lease investing (especially single tenant, NNN lease) is not the same as traditional real estate investing. In-fact net lease investing is actually a sophisticated form of fixed income investing. Traditional real estate investing typically involves running and managing a property or otherwise adding value to a transaction (such as refurbishing). Most net lease investors don’t have any landlord responsibilities or any physical or emotional connection to the real estate at all; most have never even visited the buildings they own. They buy and hold for the monthly income that a lease produces; they look at their real estate the same way other income investors look at bonds.

All this is to say that net lease investing and the CTL finance that goes along with it is a niche market and is much less affected by liquidity problems at banks or the ups and downs of the traditional real estate markets. This non-correlation allowed the CTL finance sector to continue to grow and thrive while the rest of the world experienced a severe shortage of capital.

There is no liquidity crunch in CTL finance. Investors with property that is net (NNN, NN or bondable) leased on a long term basis to a single, investment grade tenant will find that they have a dependable source of capital available to buy, refinance or build their real estate projects.

Read More Articles on Commercial Real Estate Finance –  Click Here – And Here

 

The Benefits of Credit Tenant Lease (CTL) Loans for Single Tenant, NNN Leased Real Estate

Credit tenant lease (CTL) lending has several distinct advantages over traditional commercial mortgage lending. No one type of financing is right for every situation but CTL should be considered whenever investors are buying, refinancing or building single tenant real estate that is , net leased (triple net (NNN), double net (NN) or bondable) to investment grade tenants.

Non Recourse – The sponsor / borrower is not underwritten and will not be on the hook if a loans defaults. If the tenant and the lease pass muster, the loan will close.

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

Speed – CTL loans have been known to close in 45 days from start to finish (60 days is typical). Conventional commercial mortgages can take 90-180 days to fund and close.

High Leverage – CTL bankers place no restrictions on loan-to-value (LTV) or loan-to-cost (LTC). If the debt service is covered (1-1.05x debt-service-coverage-ratio [DSCR]) by the rent CTL lenders will lend up to 100% LTV or LTC. CTL, without question, offers the highest loan balances in the commercial mortgage industry.

Fixed Rate – Rates on CTL loans are generally fixed for the entire life of the deal.

Self Amortizing – CTL mortgages are fully amortized with a term that is co-terminus with the lease. Borrowers won’t have to worry about coming up with large balloon payments or refinancing every 3, 5, 7 or 10 years.

Straight Forward Process – If the tenant is investment grade (BBB+ or better by S&P or Ba1 or better by Moody’s, or the equivalent), the property is stand-alone, single tenant and the deal carries a long term, net lease, CTL offers a very, very high degree of financing certainty.

Liquidity – There is no shortage of liquidity in the CTL sector of the commercial mortgage lending industry. Billions of dollars are available right now to finance single tenant, net leased, credit tenant real estate and bankers are actually eager to lend.

The Fed’s Second Round of Quantitative Easing (QE2) Wasted another $600 Billion; who’s up for Round 3?

From the stand-point of the commercial real estate industry, QE2 was a $600 billion dollar bust. Rates stayed low but lending stayed anemic. Trophy assets changed hands and big players with cash on their balance sheets got loans while bread and butter assets floundered because banks aren’t lending to the small operators or the mom and pops.

To further exasperate and prolong the problem, banks did not unload nearly enough of their problem loans or problem real estate. Why should they when they can stay solvent by borrowing money for free?

QE1 and QE2, while adding substantially to our national debt, did not solve our problems, it only allowed us to tread water and search the horizon for a rescue boat that we now must realize is not coming.

So what now? Do we print more money and buy the US Bonds that no one else will, or do we let the markets price our debt and go bankrupt?

Globe Street expresses the frustration that CRE execs feel in this recent post.

Credit Tenant Lease Lending Criteria – Large Fixed Income Fund Looking to Fund CTL loans – Here’s What’s Needed to Qualify

Commercial Mortgage Lender, MasterPlan Capital LLC, is corresponding with a large ($20b) fixed income fund that is actively seeking to fund credit tenant lease loans against single tenant, net leased real estate. Transactions that fit the criteria (below) can fund in as little as 45 days.

Loan: Commercial Mortgage, Purchase or Refinance
Collateral: Stand Alone, Single Tenant, Net Leased Real Estate
Type: Office, Retail, Warehouse, Distribution Center, Data or Light Industrial
Lease: Triple Net (NNN), Double Net (NN) or Bondable, 10yr +
Tenant: BBB+ (or better) by S&P or Ba1 (or better) by Moody’s, or Equivalent.
Term:  Co-Terminus with Lease
Amortization: Full, Self Amortizing
Rate: Fixed, Interpolated US Treasury + Small Margin
Recourse: Non-Recourse
LTV: No Restrictions on LTV (To 100% LTV subject to DSCR)
DSCR: 1.05x
Minimum: $5,000,000.00
Maximum: Virtually No Maximum

Click Here / Apply for A CTL Loan or call 800-727-5140 x 101

 

Credit Tenant Lease Loan Rates Down in Correlation with US Treasury Bonds – Rates in the 4%s or Lower for Best Tenants

US Treasury Bond rates have been trending down lately (See chart below).

As many of you know, credit tenant lease loans are priced based on an interpolated Treasury Bond yield plus a small margin spread. When T Bond rates go down CTL rates go down with them.

10 Year US Treasury Note 6/13/11

Mortgage rates on buildings with the best tenants with long-term, NNN, NN or bondable leases are being priced in the mid 4% range (+/-) or even lower.

With the fed contemplating the end of QE2 and the credit worthiness of the USA continuing to deteriorate, rates are sure to start to rise sometime. Investors with single tenant, NNN assets leased to credit worthy tenants would do well to refinance (or buy more) now while rates are very reasonable. They won’t be forever.

More Liquidity for Multi-Family; Freddie Mac Adds Adjustable Rate Mortgages (ARM)

Freddie Mac recently announced that adjustable rate mortgage (ARM) loans are now eligible for securitization into Freddie Mac Multi Family Mortgage Backed Securities (K Certificates).

ARMs will now be purchased by Freddie through its CME multi family mortgage loan execution path. The loans will be bought from approved lenders in Freddie’s network, pooled with other eligible loans, securitized by Wall Street investment bankers and sold to the public.

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MasterPlan Capital LLC; Commercial and Multi-Family Mortgage Loans, Equity Financing & Asset Management.  View our commercial real estate finance services, see how we do business or apply for a commercial mortgage loan. Our simple (1 page) commercial mortgage request form takes only a moment to complete and you will receive prompt, professional service.                                        

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Liquidity is, of-course, welcome as we continue to work out of our credit malaise, but as we have said before, it is somewhat disconcerting that such a large percentage of all multi family lending must come from the Government.

Click Here to Learn More about Freddie Mac Multi Family ARM Loans.

Some Lenders are Looking to Fund Gas Stations and Other Auto Related Real Estate

Several weeks ago our firm discontinued financing auto related real estate. We determined that our clients and our company would be better served if we concentrated on our core efficiencies and deemphasized lending areas that were not our specialties.

That-being-said, there are some excellent gas station, auto service center, car wash and car dealership deals out there. So, while we will not lend on auto deals ourselves, we will point investors in the right direction.

If you are looking for a purchase or refinance loan against auto related real estate, please contact us or visit our web site and complete our simple, one page, commercial mortgage application form. We will quickly put you in touch with one of our funding partners that have an appetite for your specific type of loan.

I hope we can help.

-MPC Structured Finance-              Toll Free: 800-727-5140

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.

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

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.

Private Commercial Mortgage Loans – Four Things Hedge Funds Will Ask for Before Approving a Loan

Hedge funds and other private lenders do make commercial mortgage loans. The key to securing a loan approval is knowing what these unique lenders are looking for. This interesting and informative article by the President of MasterPlan Capital LLC gives commercial real estate investors 4 keys to getting funded.

Private Commercial Mortgage Loans – 4 Things Hedge Funds Require Before Approving a Loan

Hedge funds, mortgage pools, private equity firms and even wealthy individual investors all make private commercial mortgage loans against income producing real estate. While these loans are not inexpensive, they can be a valuable resource to a property owner or commercial real estate investor who needs to close a deal fast or has credit or documentation issues.

Private lenders can close loans fast and with much less bureaucratic red tape and paperwork than institutions require. Securing a private loan can sometimes be the difference between making a huge profit and losing large amounts of money.

Almost all successful real estate investors have at least one reliable source of short-term private capital available to them so they can jump on opportunities when they pop-up or get them out of trouble when cash becomes tight. The key to getting a loan from a hedge fund or other private commercial mortgage lender, is knowing exactly what these savvy investors look for in a deal.

When evaluating a loan application for private funding there are several key factors that hedge fund managers, private equity executives and other lenders look for before they agree to fund a deal.

• Exit Strategy

Private commercial mortgage lenders are, first and foremost, opportunistic investors. Before they will even consider getting into a deal they will demand to know how they are going to be able to get out. A borrower’s exit strategy must be well thought out and must be realistic. Be prepared to demonstrate the viability of the exit. If you are planning on refinancing into a permanent, conventional loan it will help to have lenders already lined up. If you are planning to sell the deal, you will need to have a well researched marketing plan. To get a loan closed, it is imperative that you prove to the lender that they will get their money back, with interest and on time.

• Equity

Hedge funds do not exist to make you money; they exist to make themselves money. Loan-to-value (LTV) ratios in the private money industry are much lower than you will find in institutional lending. The best you can expect from a private lender is 65% LTV, and that is only for properties with sufficient cash-flow. <For loans on underperforming assets LTV ratios will be around 50%-60%. Protective equity must be present or private lenders will simply not be interested. Attempting to talk a private lender into relaxing their LTV requirements is a fool’s errand.

Further, it is important to note that private lenders base their valuations on their own assessment of what a building is worth. They are not required to accept or rely on any third party opinions or appraisals. The guy with the check book is the guy who gets to assign value, borrowers can take-it or leave it.

• Cash in the Deal

The days of 100% financing (or anything close to it) are long over. No responsible private lender will do business with a sponsor who does not have a substantial hard equity (cash) investment in the deal.

Most private mortgage originators today will look for borrowers and sponsors to have at least a 20% cash stake in any deal they fund and will never agree to be the sole financial contributor. They will sometimes allow a reasonable second mortgage but won’t allow borrowing to account for more than 80% of a deal’s capitalization.

Don’t ask a hedge fund for a loan when you are really looking for a well heeled partner.

• Experience

Hedge fund managers and executives at private lending firms are real estate finance professionals and will only work with other professionals. They are in business to make money not to give anyone a shot at the big-time. Investors, developers and deal sponsors will need to be able to demonstrate a track record of success in commercial real estate if they expect to get a loan approval.

Entrepreneurs with less than the requisite experience level, but with desire, ambition and a great deal, are advised to partner with a proven commercial real estate pro before submitting a loan proposal to a hedge fund.

Private lenders can be a very valuable capital resource for real estate investors, but their lending standards are fairly strict and they are not prone to deviate from their protocols.

The key to doing business with these unique lenders is to know in advance what they are looking for and to structure your deal to meet their criteria. Bring them deals they already want; don’t waste your time and effort trying to sell them a deal they are not inclined to accept.

About the Author: The author, Glenn Fydenkevez, is President of MasterPlan Capital LLC, a privately held commercial real estate investment banking firm. About MasterPlan Capital: MasterPlan offers private and institutionally funded commercial mortgage loans, credit tenant lease financing, equity financing and asset management services to property owners and investors in the lower 48 states. Borrowers can apply on-line using the firm’s simple, 1 page commercial mortgage application and will receive prompt, professional service.

Article Source: http://EzineArticles.com/?expert=Glenn_Fydenkevez
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Credit Tenant Lease (CTL) Financing for Single Tenant, Triple Net (NNN) Real Estate Investing – The Perfect Capital Solution for a Unique Real Estate Investment

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