Credit Lease Lease (CTL) financing is a unique lending platform designed for exclusive use with net leased real estate. Due to the distinctive nature of CTL loans, they are only available through specialized CTL lenders.

What are net leased properties?

Net lease refers to the clauses in a real estate lease that specify which party (owner or lessee) is responsible for property taxes, insurance, and maintenance.

When a tenant agrees to bear some or all of these significant expenses, the rent will be lower, but the tenant’s responsibilities will be higher. The rent is said to be “net of” any expense borne by the tenant.

If a tenant is responsible for all three (taxes, insurance, maintenance) of extraordinary expenses, the lease is described as “net triple” (NNN). Triple net leases release the property owner from all responsibilities and obligations related to real estate, except the mortgage payment if financed. Obviously net lease comes in single and double net as well.

Because a triple net lease pays monthly rent but imposes virtually no other requirements on the holder, it is considered a financial instrument much like a bond. Like a bond, a triple net lease derives its value from the strength of the entity (tenant) that agrees to make the payments.

What is a credit tenant?

Simply put, a credit holder is a tenant with good credit. A credit tenant will not only have the financial resources to be able to pay rent, but will also have a strong legal and ethical incentive to stay current.

To be considered a credit tenant and be eligible for CTL loans, a tenant must have an “investment grade” rating by one of the established corporate rating services, such as Standard & Poors or Moody’s.

Credit tenants are coveted by landlords, and credit tenants who rent on a triple net basis are the most prized of all.

What is CTL Finance?

CTL financing is a unique and highly specialized form of loan designed to work hand in hand with net credit real estate tenants. CTL loans are actually securities products that combine commercial mortgage lending with sophisticated investment banking.

When a credit lessee, net leased property is financed, the lease is actually securitized and, in a sense, becomes a privately placed corporate bond. At the same time, a commercial real estate mortgage loan is entered into against the property. The mortgage is adjoining (which coincides with the duration of the lease), fully amortized and without recourse.

The bond, which is backed by the lease, is then sold on the secondary market, usually to insurance companies or pension funds, but also to private investors. The proceeds from the bond sale are used to finance the mortgage loan.

The lease and mortgage are held within a trust and are administered by a third party trustee who collects the rent, pays the mortgage and distributes any surplus to the property owner.

Investors of net lease real estate with credit tenants should consider CTL financing when deciding how to capitalize their property.

CTL offers permanent, non-recourse, fully amortized commercial mortgages with no loan-to-value (up to 100% LTV) or loan-at-cost (up to 100% LTC) restrictions and is available for financing, refinancing and construction. and development, including cash-out financing.