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Credit Tenant Property Can Provide Similar Financial Benefits To Issuance of Corporate Bonds: If a business is deemed to be a credit tenant or its financial equivalent its corporate real estate assets can be effectively be used to secure management-free cash flow with exceptional liquidity and high leveragability performing like corporate bonds while preserving benefits that real property offers. Because of secure character of credit tenant property investments, properties can be leveraged far more highly than traditional real estate. Based on lease guarantee by tenant, non-recourse financing may be arranged with a 1.0 debt coverage ratio, llowing for financing Up to 100% loan to value. Income from an investment grade tenant over length of a multi-year lease offers reliable returns comparable to those of corporate bonds. Credit tenant leases are usually written for terms ranging from 10 to 25 years. Lengthy terms eliminate concern about tenantturnover normally associated with real estate ownership.
Near-Zero Volatility: Many of corporate real estate programs today offer fixed rent structures providing full inflation protection. Because key value determinant of credit tenant property is long-term corporate guarantee, this asset does not experience cycles affecting other real estate markets. Long-term, highly leverage financing removes interest rate risk and minimizes pricing volatility. Circumstances affecting traditional real estate, such as changes to surrounding property, local politics and market swings have little impact on credit tenant property values.
Liquidity: The long-term corporate guarantee of rental income and expense coverage combined with tenant-based financing enable corporate real estate assets to be traded with exceptional liquidity not typically associated with real property. Most lenders will allow businesses to convert existing fixed real estate assets into cash at fair market value at what may be a premium over book value. Funding can also be used for new construction including cost of land acquisition. Proper use of corporate real estate as a financing tool will eliminate need for a business to tie up capital or credit in land or buildings.
A wide variety of sale leaseback structures are available from lenders who have a practice area dedicated to corporate real estate finance. When developing your capital formation strategy make sure you evaluate corporate real estate assets as a viable vehicle for accomplishing your goals.
Visit http://www.pacificsecuritycapital.com to learn more about our services.
Mike Myatt is Executive Managing Director of Pacific Security Capital, a leading commercial real estate investment banking firm providing commercial real estate loans, structured finance, investment sales and advisory services. Contact Pacific Security Capital at 1-800-844-6085 or by visiting the company website at http://www.PacificSecurityCapital.com