Credit Quality of Triple-Net Tenants
Through the 3Net Lease Course University Partners offers, credit quality is it’s own section. As it is perhaps one of the most critical areas an investor must focus on. After your tenant moves into your building or you buy the building your tenant owns – you have a vested interest in your tenants business.
From an investor’s perspective, a triple-net-leased property’s price should reflect the tenant’s ability to meet the terms of the lease. The capitalization rate indicates this variable risk factor, because it directly represents the relationship of the stipulated net income to the price a knowledgeable investor is willing to pay. The higher the risk that a tenant may not be solvent over the long term, the higher the cap rate should be.
A tremendous amount of information is available to assist in evaluating the current and future financial strength of a tenant. If it is a public company, the credit rating is fairly easy to determine through a number of sources, including sites available on the Internet such as http://www.companysleuth.com/, http://www.zacks.com/, and http://www.freeedgar.com/.
The trend toward mergers and divestments adds another dimension to credit reviews. Even though the resulting entity usually is stronger than the original company, the risk of the unknown can be perceived as a negative factor.
If the business is complex or privately held, contact a fee-based tenant underwriting service for added assistance.
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