Credit tenant lease

A credit tenant lease (also known as a "bondable lease") is a method of financing real estate.[1][2] The landlord borrows money to finance the property and pledges as security the rents to be received from the tenant. Usually, the financing is structured as nonrecourse debt, and the lease is structured as a triple net lease.[2] Credit tenant lease loans are typically coterminous (i.e., ending at the same time) as the lease itself.[2]

A lender needs adequate collateral in order to lend to the landlord who wants to buy the property. If the landlord has a committed lessee who has an outstanding record of timely payment, then the lender is willing to accept the tenant's commitment to pay the lease payments to the landlord to pass through the landlord as collateral for payment to the lender. In other words, if the lease payments from tenant to landlord have the credit rating of a bond, the landlord will accept that synthetic bond due to the landlord as collateral for a loan to the landlord.[2]

Credit tenant leases may be created either in sale/leaseback transactions, or new purchase transactions.[2]

A "credit tenant" is a tenant with exceptionally good credit, such that the lender to the landlord has very high assurance of timely payment of principal and interest. A credit tenant is almost always a Aa or better corporation, a large regional tenant, or a local tenant with excellent credit that may be better than their national competitors. Only larger companies are eligible for credit tenant treatment by lenders. A lender will offer better financing terms for a development with a certain amount of space preleased or currently leased to credit tenants.[2]