Owners of single-tenant buildings that lease triple net (NNN) to credit-worthy tenants are finding that credit-worthy tenant lease financing is often a better alternative to selling when they find themselves in need of cash.

Selling a building is not an economic effort; brokers charge between 4% and 6% commission, and there are also numerous legal fees and other miscellaneous costs.

In addition to the direct expenses associated with the sale, there are also tax considerations. A transfer of property is a taxable event; any profit made will be highly coveted by Uncle Sam. The sale proceeds are subject to heavy capital gains tax or complex and time-sensitive 1031 exchange regulations.

Furthermore, the sale of a building is an elaborate and time-consuming affair involving buyers expecting sellers to give away properties, brokers whose commission structure creates inherent conflicts of interest, four-hundred-dollar-an-hour lawyers demanding that pay them, whether or not a deal is closed. profitable, and a variety of third parties and processors who, frankly, don’t care if a transaction happens or not. In short, selling real estate is a huge hassle.

Refinancing an asset is also not without its challenges, but when NNN investors use credit lease lease financing methods, they often find it to be a highly competent and effective method of monetizing existing capital.

From a landlords perspective, CTL is a streamlined, streamlined way to borrow against a single-tenant building. Simply put, if the lease and tenant pass the test, the owner can withdraw 100% of the equity in a building in about a month and a half.

CTL is a highly specialized form of real estate investment banking. Bankers originate a commercial real estate mortgage loan, create a private placement bond that is collateralized by the proceeds from an NNN lease, sell the bond to fixed income investors, and deliver the proceeds to the borrower. Everything works smoothly and efficiently if a loan qualifies.

In order for a deal to be eligible for CTL loans, the real estate property must be “stand-alone”, meaning it must be a separate parcel for tax purposes, and it must be leased by NNN to a single “investment grade” tenant. Most bankers consider anything above BBB- from Standard and Poors and/or Ba1 from Moody’s to be investment grade. If those criteria are met, there are generally few problems obtaining a CTL loan.

CTL loans are highly leveraged loans, in fact CTL bankers do not place restrictions on loan to value (LTV) and have extremely low debt service coverage ratio (DSCR) standards; usually 1.01X – 1.00X. This means that owners can access up to 100% of their capital without relinquishing ownership of the real estate. Borrowers retain rights to all rent collected in excess of the mortgage payment. That means any annual extensions or renewals belong to the landlord, not the bank or the new owner.

Another attractive feature of CTL is the fact that it is a fixed-rate, self-liquidating financing. Borrowers won’t feel the effects of rising interest rates or have to worry about making large balloon payments at the end of a building’s life cycle. CTL loans generally coincide with the length of the lease; when the lease ends, the loan is already paid and the property is free and clean. If the tenant renews, all rent payments flow directly to the bottom line.

NNN investors find that CTLs are relatively hassle-free, non-recourse loans, the lease, not the owner’s wallet, backing the mortgage. Plus, they’re quick and easy to get if an offer qualifies. A CTL loan can be funded and closed from start to finish in as little as 45 days (60 days is typical). A standard commercial mortgage loan from a bank or insurance company can take 90-180 days or more to finalize, and selling an asset can take months and months of marketing and negotiating before it finally closes.

Compared to trying to sell a single tenant building leased by NNN, CTL can be very favorable and is often the best option. CTL offers the largest loan balances in the commercial mortgage industry (at 100% LTV) and, unlike sales proceeds, there is no tax bill due. It can be done very quickly and there is no need to trade horses back and forth. Many owners, developers and sponsors find CTL to be the superior method of obtaining the equity they have secured in single tenant real estate. In any case, CTL is worth considering as an alternative to sale.