Credit Tenant Lease (CTL) Finance Can Be Used for Construction and Development – 2 Straightforward Methods

18 Jun

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Credit tenant lease (CTL) financing is a very productive capital resolution for the acquisition and refinance of single tenant, actual estate that is net leased (NNN, NN or bondable) to an investment grade tenant.

Due to the fact CTL bankers never spot restrictions on loan-to-worth (100% LTV) CTL delivers the highest loan balances in the commercial actual estate finance market, this makes CTL perfect for purchasers who want to finance their purchases with extended term, high leverage, fixed rate, totally amortized industrial mortgage loans, on a non-recourse basis. Likewise, CTL is the finest approach for pulling equity out of current assets or refinancing older, high interest mortgages as they come due.

But, although CTL has established itself in the buy and refinance arena, a lot of investors who construct single buildings or create significant scale projects do not realize that CTL loans are also obtainable to finance assets getting constructed from the ground up. As lengthy as there is an executed, long-term net lease in spot, and the tenant is credit worthy, CTL is a viable choice.

Approach 1 Standby Letter of Credit

As soon as a lease is signed a CTL banker can turn it into cash. Developers who want to use CTL to fund construction can do-so by utilizing a monetary instrument recognized-as a standby letter of credit.

Very first the CTL banker originates, underwrites and completely funds a fixed rate, self amortizing commercial mortgage loan with terms that are coterminous with the lease. The loan amount can be just adequate to cover construction or up to the total worth (lease fee valuation) of the complete finished project.

The funds are deposited in a financially sound (rated A1 or greater) industrial bank (ideally 1 with offices near the project) and placed in certificates of deposit (CDs) with staggered maturities covering the estimated construction period. The Developer is credited with all interest that the CDs earn.

Subsequent the bank, and the borrower, with the consent of the CTL Trustee, execute a standby letter of credit. This instrument protects the interests of all parties and will stay in location until the tenant starts to occupy the constructing and spend rent. The bank, for a little fee, administers the loan for the duration of construction, generating distributions to the developer on a predetermined draw schedule. The builder tends to make interest only payments on the loan although the project is becoming built. The interest payments can be created using the deposited loan proceeds and are offset somewhat by the interest that is being earned by the CDs.

When the constructing is complete and the tenant moves in the standby letter of credit is dissolved and the loan begins to amortize. Any remaining loan proceeds are released to the developer and administration of the loan is transferred to the Trustee who will gather rent, spend the mortgage, and distribute any good cash flow to the borrower.

Technique 2 Forward Dedication

Forward Commitments are not to be confused with Letters of Intent (LOI) or Term Sheets Forward Commitments are formal loan documents that are binding on all parties. Unlike a term sheet or LOI a Forward Dedication must be honored if a builder delivers the building in accordance with the specifications inside the time allotted the lender will fund and close.

Construction and development lending was the 1st sort of financing to drop-off when the credit crisis hit and it will be the last kind of lending to recover. There are many issues that can go wrong with a construction loan and presently the economy can modify drastically in the 9-36 months it takes to build a high quality constructing. These details place development loans in the higher danger category and bankers have shied away from them for the last 4 years.

The important to obtaining a construction loan is to take away as considerably danger as possible from the construction lender and a Forward Commitment from a CTL banker is the ideal way to do it.

Banks give no credence to LOIs simply because they have no teeth. Any lender can back-out of any LOI at anytime. Seasoned (Developers who have taken an LOI to a construction lender know this to be true.) A Forward Dedication, even so, is a formal and legally binding permanent loan dedication to be closed when the creating is completed. Banks recognize that Forward Commitments significantly mitigate the risk their capital is exposed to. Most banks will have no dilemma funding construction when they know that permanent financing is currently in spot immediately after all what do they have to shed.

Prior to a CTL banker will situation a Forward Commitment they will totally underwrite the project and verify the terms of the net lease. Again, the tenant need to be investment grade and the creating ought to be stand-alone and single tenant. The lease need to be triple net (NNN), double net (NN) or bondable and should be at-least 10 years lengthy. The CTL lender and the borrower will go through the entire CTL approach up-to closing. The closing date will be based on the estimated construction time and should correspond with rent commencement.

With a Forward Dedication in-hand, a developer will have tiny issue securing construction from a bank or insurance firm. They supply construction capital and the pre-negotiated CTL loan pays-off the bank loan and gives the lengthy-phrase, fixed rate debt needed to make the project viable.

Now Developers and Builders have two techniques to use CTL finance to get construction cash as-effectively-as permanent financing. They can take funds offered by CTL finance deposit them in a bank, and have the construction funded via a Standby Letter of Credit. Or, if they prefer, they can have the CTL banker issue a Forward Dedication and use that document as leverage in order to get a conventional construction loan.

No matter whether getting, refinancing or developing, CTL lending remains an superb capital answer for single tenant, net lease investors and developers.

36 Responses to “Credit Tenant Lease (CTL) Finance Can Be Used for Construction and Development – 2 Straightforward Methods”

  1. Johnny December 28, 2012 at 8:17 am #

    I have to re-locate (my spouse and i are divorcing. We’re both around the lease therefore we are generally leaving.

    The lease has ended 09/2007.

    I understand the safety deposit is going to be stored and that i will need to clean the area and can I result in any longer costs?

    I’m giving thirty days needed notice

  2. Jong January 21, 2013 at 3:15 am #

    Also how could it be not the same as the standard letter of credit?


  3. Warren February 6, 2013 at 2:48 am #

    I don’t have a well paying job and my credit has gone down, so I can’t get an apartment. How can I find a place where people rent out their home or condo? I’m sure they aren’t as strict as getting an apartment as in high credit score and checking how much my job pays.

  4. Fidel February 18, 2013 at 8:54 pm #

    I am considering renting a house I own but I have never done it before. I know that I want to check references of applicants but how can I check their credit report, etc? Are there any Web sites or other references that might help me get started with this process? Thanks.

  5. Tynisha February 20, 2013 at 4:05 am #

    Im looking for an apartment and everybody keeps asking for a credit application. i have been in my apt for 6yrs so i didnt have to do that. Why is this?

  6. Chester February 21, 2013 at 12:44 pm #

    The police department will not charge the tenant for the damages because they say that there were no witnesses.
    What steps can a Land Lord take to prevent this happening?

  7. Lloyd February 22, 2013 at 7:29 pm #

    We have a lease which ends on Nov. 1st and we are moving into a new place on Oct. 1st. We have had a really bad experience with the manager of this building, and don’t want to have to deal with her showing our apartment (first of all, we don’t want her in our home unless we’re here with her while she shows it; secondly, we would rather not deal with her AT ALL).

    For these reasons, we would rather give our notice on Oct. 1st as we will already be moved out and won’t have to deal with her showing the apartment, etc. The rent for October will be paid so there’s nothing illegal that we’re doing in that regard. However, we’re told we need to give 60 days notice.

    If we only give 30 days notice, what can the management do to us? Is it likely that they would pursue it and take the matter further, or would they just leave it alone? What could they possibly due to us if we’re out of our lease at that point? Please help!

  8. Valentine March 13, 2013 at 12:50 am #

    A friend wants to ‘co-sign’ with a tenant who doesn’t have a job yet. But that friend doesn’t actually live in the rental property. Should I as a landlord go with ‘joint tenancy’ – assuming joint tenancy generally means joint and full responsibility – and presume that the friend also lives there? Are there better ways to do this?

  9. Margarite March 16, 2013 at 1:44 am #

    I subleased my unit very recently. All paperwork was signed, putting the new tenant on the lease and taking my name off of it. I was wondering, now, if they find any charges to the unit, if they can go back and access my credit card information and charge me if things are left unpaid?

    Thank you if you can help answer this!

  10. Clayton March 30, 2013 at 11:58 am #

    Could you explain to me?
    Could you explain me what is the difference between Letter of Credit(that we have to prepare the proforma invoices to proceed) and standby letter of credit. Are Bank Guarantee and Standby Letter of Credit the same? As I know, if I want to apply for banking facilities (Overdraft and LC) from Bank A, I have to have Bank to issue to Bank A a standby letter of credit, is it right? why do I have to do like this? Why can not I put directly the collateral directly to the bank that I want to apply the banking facilities?
    Dear Sage, thanks for your useful explanation, could you explain me what is credit enhancement? could you give me your email address? I really appreciate it. thank you very much, sage
    And what is the difference between Bank Guarantee and Standby Letter of Credit?

  11. Salvador April 20, 2013 at 10:45 am #


  12. Yolonda April 29, 2013 at 10:29 am #

    it related to the grarment marchndising

  13. Tammi May 12, 2013 at 12:12 am #

    What better iPhone 3G ( MID 08) , Blackberry Storm(NEW) T-Mobile G1 (NEW) also the HTC Touch pro (KIND OF NEW) What do you think is the best??
    I Think the best Touch/ Business Cell will be the T-Mobile G1.

  14. Sherwood May 12, 2013 at 7:56 am #


    There are several purposes for sales/leasing instruments:

    a. Finance Real Property Development.
    b. Invest in Securities Trading Program.
    c. Financing Other Purchases.
    d. Credit Enhancement Purposes.
    e. Compensating Balances.

    We, Global Investment International Group. Are currently in need of marketing agents to enhance our global financial services catchment areas. We are aware of the needs of finance in the global market. So we hereby employ you to be a part of this financial compliance solution in your catchment area. All our agents are working on commission base guided by the ICC and FPA. For more information, feel free to contact us for enquiries.

    Global Investment International Group is a Private Financial Firm with financial credibility where Individual and Corporate Organization fulfill their financial services; we are financial Firm Providing Financial Services to private organization, companies, government parastators and individual brokers worldwide.

    We are specialized in banking Instruments such as Bank Guarantees, Standby Letters of Credit, Bank Drafts, Certificates of Deposit, Medium Term Notes, Letter of Credit Etc….

    Monetized/Discounting: We Monetized/Discount callable and verifiable owned Bank Instruments, and Provide Collateralized Loans non-recourse loan no payback. We accept: BANK GUARANTEES, STANBY LETTERS OF CREDIT, BANK DRAFTS, LETTERS OF CREDIT, MEDIUM TERM NOTES. We do proceed via SWIFT MT-760, etc… Your Finance is our market of interest. Let Serve you better.

    Thanks and Best Regards

    For and on behalf of Global Investment International Group

    David Dean

  15. Isreal May 12, 2013 at 11:55 am #

    We hereby request a Standby Letter of Credit or Bank Guarantee on behalf of our non-profit clients. The non-profit has been pre-approved for a forgivable humanitarian loan in the amount of $ 350 Million USD or Euro equivalent. The funds for the loan are already available and funding is pending on a third party collateral provision to meet IRS guidelines.

    This SBLC needs to be for a year and a month and will be received by a Tier One Bank such as HSBC or equal. In return for the instrument the Provider receives a Bank Guarantee to Return the SBLC unencumbered, and without liens, 15 days prior to expiration. In addition the Bank will undertake to provide compensation to the Provider as negotiated by a Bank appointed Beneficiary. The Beneficiary will also provide all the corporate and banking documentation for the transaction and will through the Bank comply with all Patriot Act compliance requirements.

    The Provider and the Beneficiary will agree upon terms and conditions and will complete a joint agreement between parties prior to any transaction. As a part of the agreement, upon receipt of the conditional MT760 the instrument is automatically assigned to the Bank in order for them to do the Bank Undertaking.

    When you are prepared to move into negotiations with the Bank appointed Beneficiary, please present a copy of a simple letter from your Top Tier bank to you stating that you have a banking relationship and confirming your ability to participate in this size transaction. Additionally, please include an outline of your anticipated term sheet or a Letter of INTEREST (not Intent) for this transaction.

    If you are wondering why does it have to be a forgivable loan, why don’t they just make a donation the answer is very simple. If they make a donation they cannot control what the funds are used for. However there are strict IRS guidelines to follow when making a forgivable loan. By structuring the deal this way the “Donor” knows where their money is going and all parties assisting in the transaction are fully protected and compensated.

  16. Sherlyn May 13, 2013 at 1:26 am #

    What is Standby letter of credit?

  17. Maurine May 13, 2013 at 2:44 am #

    I need help with this, I have a paper due on it next week. I just need help with translation or maybe any other info you have on it. If you have read it, or know anything about it please help me. I have tried the translation on Babelfish but it’s not very helpful.
    The link to the essay in spanish is here .

    Thank you!

  18. Chelsie May 13, 2013 at 2:03 pm #

    clearing house,
    products offered by commercial banks and
    types of commercial bank operated accounts

  19. Christia May 20, 2013 at 8:43 am #

    I need to get a letter of credit to post with a state agency. How much does a $US100,000 letter of credit cost, with a term of two years?

  20. Donn May 27, 2013 at 8:06 pm #

    WANTED: E-Document of the revised/redrafted UCP500 with 39 Articles, incl new sections & ammendments.Thanks in advance..

  21. Patrica May 27, 2013 at 8:20 pm #

    1) What is FFRDLC ?
    2) What is BG ?
    3) What is SBLC ?

  22. Hannah May 29, 2013 at 4:07 pm #

    Do you have any idea how to protect my export payment when it is not on Letter of Credit basis, and my country also does not have any export credit agency facility?

  23. Fletcher May 29, 2013 at 5:10 pm #

    I’m flying IND-DTW-FRA-CDG-LAX-HNL-SFO-MSP-IND next month and considering to flight from CDG-LAX is 12 hours, I was thinking about possibly waiting until everyone has boarded, and if there is an open seat (there are a lot right now) slipping into business class. I’m flying with Delta/Air France. Any tips on how I might go about that? I don’t know if the flight attendants have like a seating chart or something…
    @Impulse It is pretty addicting! This is my 3rd time in Europe in less than 2 years 🙂
    @embarrassed Thanks for the tips. But I mean seriously if the upgrades weren’t $4,000 more I might consider actually buying it 😀 But if the seat is going to go empty…I couldn’t care less about the free booze etc. I just want to lay down!

  24. Maud May 30, 2013 at 3:32 am #

    what about L/C Transferable And NonTransferable?
    what you know about that

  25. Selina June 7, 2013 at 6:23 am #

    In banking what is the meaning of letter of credit?

  26. Vera June 7, 2013 at 1:22 pm #

    I’m exporting some goods to a company in morocco and they want to pay me with a standby letter of credit and i have never heard of it.I did some research in the Internet but not satisfying .please tell me if i have any risk to not get paid and how it a sblc different from an lc and what kind of documents if any shoudl present to my bank to get paid?

    Please help

  27. Norris June 7, 2013 at 11:15 pm #

    Hi All
    I bought nice new Panasonic plasma 3 weeks ago from Harrow Electronics though Amazon.
    The other night it broke, stuck on standby.
    Can some one tell me my legal rights (paid with creditcard) I have emailed Harrow 3 times now through the Amazon website and have had no reply!
    It’s geeting really frustrating 2 teenage daughters and no tv!
    Thanks in advance.

  28. Mary June 8, 2013 at 7:01 pm #

    Need details about type of Letter of credits L/C

  29. Nick June 8, 2013 at 7:52 pm #

    a)chartered banks
    b)near banks
    d)none of the above

  30. Rubin June 10, 2013 at 2:32 am #

    A> not get involved in any further contracts whatsoever.
    B> fulfill monetary obligations involving construction, service, or sales contracts.
    C> only fulfill monetary obligations involving sales contracts.
    D> only fulfill monetary obligations involving service contracts.

  31. Zita July 4, 2013 at 3:45 pm #

    a. Cash-collateral accounts that are deposits set aside to cover losses.
    b. Financial guarantees from bond insurance companies.
    c. Standby letters of credit from major commercial banks.
    d. A guarantee to pay from the borrowers

  32. Wilber August 15, 2013 at 2:26 pm #

    (no wikipedia copy-paste please)

  33. Agatha August 23, 2013 at 10:35 am #

    I was told that every time you apply for an apartment and are denied it takes your credit score down by 5 points. Is that true?

  34. Edmond September 9, 2013 at 7:34 am #

    How do banks calculate what to charge for a standby letter of credit?

  35. Isidro September 22, 2013 at 9:07 pm #

    A step by step guide through the process would be very helpful.

  36. Alethia September 23, 2013 at 1:08 am #

    Can we use letter of credit as payment option in construction contracts? If yes, how it works?

    I mean, can a contractor ask project owner (employer) to issue a letter of credit of full contract amount, and the payment to be released to his account every month, based on work done in that month.

    Anything like that exists?

    We are about to close a deal with a new company, and we want to be assured of the payment. We do not want to be waiting for the cheque after we finish work.

    Project duration is 12 months.

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