CTL: Credit Tenant Leases in Commercial Real Estate

What is a Credit Tenant Lease in Commercial Real Estate? 

A credit tenant lease (CTL) is a form of commercial real estate financing in which a loan is given for a property with a long-term lease (usually 10+ years), and is typically held by a nationally-recognized tenant with a high credit rating. Due to the additional security of having a high-credit tenant, lenders are often significantly more flexible when it comes to loan terms for CTLs.

CTLs are typically negotiated as triple net (NNN) leases, in which a tenant is responsible for most or all repair and maintenance (R&M) costs. However, credit tenant leases are sometimes arranged as double net (NN) leases, which can increase cash on cash returns for a landlord, but will increase their overall risk, especially as a property grows older. 

Benefits of Credit Tenant Leases

Credit tenant leases typically have a variety of benefits, including: 

  • Higher LTV allowances, often 95-100%

  • Higher DSCR allowances, often 1.00-1.05

  • Consistent income and less risk for investors

  • Less management cost than multi-tenant properties

  • CTLs are typically non-recourse loans

Credit Tenant Leases and Sale Leaseback

Credit tenant leases are often engaged as part of a sale leaseback transaction, in which an investor purchases a commercial property and leases it back to the previous owner at a set rate for an extended period of time (often 20-30 years). Whether a CTL involves a sale leaseback transaction or just a regular lease, the tenant often has the ability to purchase the property at a certain point; either for a fixed amount or for the property's fair market value. 

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