Tenant Credit Lease (CTL) financing is a very unique and highly specialized type of commercial mortgage loan designed to provide financing for the purchase, refinance, and construction of triple network (NNN) leased real estate. for its acronym in English) to creditworthy tenants.

Unlike traditional commercial mortgage loans, CTL loans are underwritten based on the financial strength of the tenant and the structure of the lease rather than the underlying value of the property and the borrower’s credit. With CTL loans, the lease and the income it guarantees are the main collateral behind the loan.

Due to the direct nature of CTL financing, these loans offer NNN investors several significant benefits.

• Higher loan amounts

CTL lenders generally do not place loan-to-value restrictions and will lend up to 100% LTV. There are also no restrictions on loan at cost (100% LTC) for construction loans. The only stipulation is that the rent collected must cover the mortgage payment. (Debt service coverage ratios [DSCR] are very low, typically 1.01-1.05) CTL financing offers the highest possible loan amounts. The amount of potential leverage is unrivaled in the commercial real estate industry today.

• execution speed

CTL loans are a streamlined process that takes much less time than typical bank loans or other commercial mortgages. An average CTL loan can close in 60 days or less from start to finish. Loans from Wall Street bankers, Hartford insurance companies, and commercial banks are notorious for being lengthy bureaucratic affairs that can take anywhere from 90 to 200 days to close.

• no recourse

Homeowners appreciate the fact that CTL loans are non-recourse mortgages. The lease is the guarantee; lenders won’t go after borrowers if something goes wrong.

• Long Term Financing

The term of a CTL loan usually coincides with the term of the lease. Many tenants sign 10, 20, or even 25-year leases. CTL financing is often the last loan an investor will need. If the building is sold, the new owners can simply assume the CTL loan. If they keep the building, they won’t have to worry about refinancing for a long time.

• Fixed rate, self-amortizing

Virtually all CTL loan rates are fixed for the life of the loan. Investors can plan ahead confidentially because they know for sure how much it will cost to service their debt. CTL mortgages are also automatically amortized over the life of the loan, so homeowners don’t have to worry about finding money for balloon payments.

• construction financing

Almost all other lenders have significantly reduced construction and development financing, but CTL’s capital is still readily available to finance the construction of buildings that will be leased to investment-grade tenants.

• Many tenants qualify

The United States government remains the ultimate “credit holder.” Anyone purchasing or developing a building that will house a government administration office or federal courthouse will find it relatively easy to obtain a CTL loan. In the private sector, several retail companies are also eligible for CTL financing. Pharmacy chains Walgreens and CVS are among the most popular, as are home improvement giants Home Depot and Lowes. Wal-Mart is also a very prominent CTL funding candidate. Virtually any real estate tenant who enjoys an investment grade credit score (BBB- or higher) from one of the major credit bureaus and rents space based on NNN can qualify for CTL loans.

CTL loans are one of the best ways to finance real estate leased by NNN. In this age of tight credit and nervous lenders, homeowners, investors, and developers with high-quality tenants have a source of financing they can trust.