Direct placement Credit Tenant Lease financings have many advantages over a typical real estate financing when leasing to a credit tenant.
Unlike a real estate financing the loan to value can be 100%, enabling the developer to borrow 100% of the costs of the property. Debt service coverage is typically 1.05x and can be as low as 1.00x . Financing is non-recourse and long term with maturities and amortizations as long as thirty years. Net leases with credit tenants with fifteen year terms or more typically can be financed at 100% of cost.
The structure is quite simple. The net lease becomes security for the CTL loan along with a mortgage on the property. CTL bond private placement involves only three parties, the issuer, the Placement Agent/Broker and the Institutional Investor. There are no financial covenants associated with the CTL private Placement Bond. The Private Bond cost is very reasonable with a small set up fee ($16,000) and a small annual fee ($6500) for the Bond Trustee. Remaining closing costs are typical real estate financing costs.
The financing pricing can be immediately locked-in at no cost upon the acceptance of a bond purchase commitment. Investors/Lenders are institutional long term debt buyers providing a fixed rate for the full term of the loan and matching the CTL long term asset with their long term liabilities.
Bond investors typically require protection from environmental and condemnation risk which can be included in the lease obligations of the credit tenant or insured for by the owner. In many cases bond investors will assume residual balloon payment risks if the balloon payment does not exceed 50% of the go dark value of the property. This risk can also be insured.
Most medical CTLs can be financed today without residual insurance given that a 15/20 loan has a balloon balance at today’s interest rate of about 30% of the original loan. This also applies to other specialized properties with higher rent constants than typical multi-tenant office properties. Corporate home offices with a higher level of tenant finish would also typically qualify.
A CTL can also be used for a Build-to-suit Construction and Permanent Financing Program (BCPF) program whereby the Lender provides the Borrower with construction and permanent fixed-rate capital. The permanent component is without recourse and the interest rate is fixed for the life of the construction/permanent loan at closing of the construction component.
Contact Midwest Credit Lease LLC to see if your development would qualify for a Direct Placement CTL.
Bifurcated Ground Lease Financing
For multi-tenant properties and multi-family properties structured with a long term absolute net ground lease, higher leverage is available than what would typically be provided by Life companies and CMBS firms on a pure land and building fee basis.
This relatively new program is now available to all property owners that structure their ownership with both a land ownership entity and a building ownership entity.
Please see the Developers Blog page for new program for unsubordinated ground leases.