A Credit Tenant Lease (CTL) or Conventional (Bank) Loan – Which Is Best for My NNN Deal?

Many good high quality, single tenant, web leased properties qualify for each credit score tenant lease (CTL) financing and traditional industrial mortgage lending. Web lease property buyers ought to think about the professionals and cons of every earlier than deciding which sort of mortgage to decide to.

CTL lending is usually finest for the long run revenue investor who needs everlasting, excessive leverage, mounted fee, absolutely amortized financing and wishes pace and certainty of execution. Financial institution lending has a decrease preliminary (however not total) value and may supply a bigger number of phrases and circumstances. Banks are finest for buyers who want choices, do not want most leverage (have giant down-payment out there), and who will not be positive if they’ll maintain a property for the long term.

The Distinction

CTL lending combines features of economic mortgage lending with specialised funding banking in-order-to shut offers. A CTL banker points and sells personal placement company bonds which might be secured by the lease on the true property. The proceeds of the bond gross sales are used to fund a industrial mortgage mortgage for the borrower. The mortgage is run by a 3rd occasion Trustee all through the lifetime of the deal.

Conventional industrial mortgages are commonplace loans secured by mortgage liens in opposition to the true property, the revenue the property produces and the credit score of the borrower. Banking establishments originate a mortgage and fund the deal both by promoting the mortgage to an investor (personal or Authorities) or by lending its personal funds and holding the mortgage in its portfolio.


The continuing credit score crunch has compelled banks to tighten up their lending standards. It’s extremely unlikely {that a} industrial financial institution will supply any greater than 75% loan-to-value (LTV) on any deal at the moment. Banks don’t have any incentive to take pointless threat; they will borrow cash from the Fed (Federal Reserve Financial institution) at 0% % and purchase 10 12 months Treasury Bonds at 2% incomes 2 factors threat free. They’ll move on excessive leverage loans and solely lend the place they’ve giant quantities of protecting fairness.

CTL lenders will lend as much as 100% LTV (lease payment valuation) on a non-recourse foundation. They’re within the enterprise of loaning the complete, present money worth of a lease (in opposition to the assured future revenue). CTL bankers, with out query, make the best mortgage provides within the industrial actual property finance business.

Pace and Certainty of Execution

CTL loans can shut in about 1/third of the time it takes to shut a standard industrial mortgage. CTL offers have been recognized to be accomplished, from-start-to-finish, in as-little-as 45 days (unprecedented on the planet of economic banking) however usually take 60.

Financial institution loans take at the least 60 days, typically 180 or extra. Additionally, as a result of CTL offers both qualify or would not, a banker can provide a borrower a stable sure or no in a short time. There are a thousand methods a financial institution mortgage can fall by way of however, as soon as a CTL banker commits to a deal and a borrower indicators off, there’s a close to 100% certainty of execution.


CTL loans are all non-recourse loans secured by the revenue that the lease produces.

Financial institution loans are often, although not all the time, commonplace, credit score pushed, full recourse loans with liens in opposition to the borrower in addition to the true property.


A CTL mortgage may have increased preliminary prices due to the funding banking side to the deal and the truth that a 3rd occasion Trustee should be concerned. Nevertheless, over the life cycle of a property, CTL tends to be cheaper since you by no means must refinance. On the finish of a CTL mortgage the borrower owns the property free and clear.

Financial institution loans should be recapitalized or paid off on the finish of every time period, often 3, 5, 7 or 10 years. Having to refinance so typically leads to increased total value of capital.


CTL lending is considerably much less versatile than commonplace financial institution lending. The bonds bought by CTL bankers are regulated by the securities industries and the insurance coverage industries. CTL lenders should adhere to very strict standards and will not be allowed to deviate from the requirements. A deal qualifies for CTL or it doesn’t; there is no such thing as a leeway.

Banks usually have many lending platforms out there to them; they’re able to tailor a mortgage to a selected scenario or a selected property.


Banks can supply self amortizing loans however usually concern mortgages with 3,5,7 or 10 12 months maturities amortized over 10-25 years with balloon funds due on the finish of every time period. Banks may also supply both mounted or adjustable charges.

CTL loans are all absolutely amortized, mounted fee, long run loans with phrases coterminous with the lease.

In Abstract

Banks supply a bigger number of mortgage merchandise and may mortgage in opposition to extra kinds of properties and tenants. Financial institution lending additionally tends to be cheaper within the short-run.

On the draw back, banks will not be inclined to supply excessive LTV loans and can usually require the borrower to ensure a mortgage. Additional, financial institution loans are infamous for falling by way of and failing to shut for any quantity or causes (or no purpose at-all).

CTL loans are inflexible of their qualification requirements however shut with close to 100% certainty. They shut quicker and are cheaper over the lifetime of a deal. CTL bankers place no restrictions on LTV or LTC (loan-to-cost) and are non-recourse loans. Additionally, it should be famous that CTL loans are administered by a 3rd occasion Trustee all through the whole lifetime of a mortgage. The trustee will accumulate the hire, pay the mortgage and distribute the revenue to the borrower each month.

CTL loans are finest for purchase and maintain buyers who wish to lock in at the moment’s low fee for the long run. They’re additionally acceptable for buyers who want excessive leverage financing or who need to shut as-soon-as-possible.

Financial institution loans are finest for buyers with offers that want some flexibility within the underwriting course of. Financial institution loans will value much less up-front and extra offers will qualify. Banks supply extra mortgage decisions to certified debtors.

Single tenant, web lease actual property buyers who perceive their choices can be properly geared up to make the very best financing selections for themselves and their companies.

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