PMTG-Finance

World Finance

Month: March 2019

Credit Tenant Lease (CTL) Loans for Government Buildings Readily Available Despite Credit Crunch

Credit Tenant Lease (CTL) Loans for Government Buildings Readily Available Despite Credit Crunch

If Uncle Sam is your tenant a credit tenant lease (CTL) banker can monetize your lease and get you a loan quickly and efficiently despite the ongoing credit crunch.

The US government and US Government agencies are among the largest renters of office and industrial space in the world. They generally sign long term leases and lease on a triple net (NNN) basis. That means no landlord responsibilities for years on end. But the best part about a Government tenant is they always, always, always pay their rent on time. Property owners who rent to the Feds can count on long-term, predictable cash-flow.

Investment bankers know that the US Government enjoys the highest possible credit rating (triple A) and Government Agencies, by extension, have what Wall Street calls an “implied triple A” rating. The Government has taxing power which means that they will never run out of money. The financial strength and stability of the Federal Government allows bankers to turn leases into cash for commercial real estate investors.

Credit tenant lease finance (CTL) is a unique and highly specialized lending platform that is designed to finance the purchase, refinance and construction of real property that is leased to the Government or other “investment grade” tenants.

A CTL banker originates a commercial mortgage loan and then creates and issues a private placement bond that is secured by the income that the NNN lease guarantees. The bond is subsequently sold by brokers and traders to fixed income investors such-as insurance companies, pension funds, endowments and even wealthy individual investors. Proceeds from the bond sale fund the mortgage loan. The whole process is administered by a third party Trustee throughout the life of the loan.

CTL is long term (co-terminus with the lease), fixed-rate, self-amortizing financing. It can also be high leverage; CTL investment banks place no restrictions on loan-to-value so 100% LTV loans and cash-out refis are possible even in today’s tightened credit environment. The rent must cover the mortgage payment and any required escrow but debt-service-coverage-ratios are exceedingly low, usually not more than 1.01. CTL offers borrowers the very highest loan proceeds in the commercial real estate industry.

The recent bad economy and choppy markets have lead to a “flight to quality”; there is virtually no limit to the demand for Government backed bonds like those CTL lenders issue. Any long term, NNN Government lease can be funded and closed in 45-60 days from start-to-finish. There is no credit crisis for investors who own buildings leased to Uncle Sam. From relatively small projects, like a new $3mm Post Office being built in your home town, to massive hundred million dollar plus Department of Defense projects, the liquidity is there to buy, refinance or develop the Government real estate.

We have seen massive amounts of stimulus spending designed to get our economy going again. All around the country new Government buildings are going up. The recently formed Department of Homeland Security is expanding rapidly. The Post Office is updating … READ MORE ...

Cash Flow Problems For SMEs Being Addressed

Cabinet Minister Francis Maude has revealed that the government is on course to more than double its expenditure with small and medium-sized firms from 2010 levels by the end of the month. This, combined with recent figures from the Asset Based Finance Association, will hopefully go some way towards easing some of the most common cash flow problems facing SMEs at present.

Speaking at the Public Procurement Briefing 2012, Maude said that 13.7% of its spending will go directly to SMEs by the end of March, which is up from 6.7% two years ago and equates to more than 6 billion.

He announced: “We said we wanted to improve things for smaller businesses and today we have shown that the measures we introduced a year ago are making a difference.”

It’s often said that the UK’s SMEs are the lifeblood of the economy, yet they have borne the brunt of the extensive cash flow challenges facing businesses in the last two years. Low demand, late payment and a restricted access to traditional forms of finance are perhaps the most severe causes of the cash flow problems small businesses are having to contend with at present.

For this reason, the development brings good news on two fronts as SMEs’ order books will be replenished and the government actively tries to pay suppliers within ten days of receiving an invoice. It is hoped that, eventually, 25% of all government expenditure will be to the SME sector.

Meanwhile, the cash flow problems caused by firms struggling to access credit have received an encouraging boost from the latest ABFA stats, which revealed that advances made to its members’ clients rose by 7% in the final quarter of 2011 on an annual basis to 15.8 billion.

This provides a stark contrast to traditional bank lending, which fell by a staggering 35% to businesses turning over less than 1 million in the three months to November 2011, according to the Bank of England’s latest Trends in Lending report.

Asset based finance enables firms to improve their cash flow by accessing the cash that’s otherwise tied up in a range of business assets. While there was a 7% annual increase in advances for pure invoice finance facilities, which solely release cash against the sales ledger, there was a staggering 84% rise in advances against plant and machinery.

The cash these facilities release can then be used to reinvest into securing new business, as evidenced by clients’ sales rising by 9% over the same period to 62.3 billion.

And with client numbers on the rise having increased annually by 1% in Q4 2011 to 41,496, and with 49.8% of clients turning over less than 1 million, it is clear that this form of lending is available to SMEs.

Can your business afford not to investigate asset based finance further?… READ MORE ...

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