Credit Tenant Lease (CTL) Loans – A Time Line – How Fast Can I Close?
I’m often asked how fast a Credit Tenant Lease (CTL) loan can close. CTL financing is a streamlined method of lending against real estate that is triple net (NNN) leased on a long term basis to an investment grade tenant such as Walgreens, Home Depot or Wal-Mart. Because CTL loans are non-recourse loans, bankers don’t have to use as much time looking into the credit of the borrower. With CTL it is the lease that is the dominant collateral that backs the loan. Most CTL loans can be completed, from-start-to-finish, in about 60 days.
I have constructed a time-line below that should help NNN investors understand the steps involved in CTL lending and how long each step typically takes.
Initial Quote: 1-3 Days
Based on some basic information that you supply to the banker, they provide a preliminary financing quote. This quote will calculate the maximum loan amount they are willing to offer, give you an idea of current rates and review some of the major fees and expenses you can expect to incur.
Term Sheet / Application: 3-5 Days
If you decide to proceed with the CTL course of action the investment bank will analyze the lease(s) and gather some information about you. Usually within 5 business days they should be able to issue you a highly detailed term sheet that will act as your formal application. This is a very important document that should be read carefully; it outlines the rights and responsibilities of each party to the loan and will form the bases of your particular CTL mortgage.
Rate Lock: 1-3 Days
The bank will go into the market and lock in your particular interest rate. Because CTL is long-term, high leverage financing this usually involves them hedging their interest rate risk. Your rate will be guaranteed and fixed for the life of your loan.
Underwriting: 35-45 Days
Third party reports such as appraisals and environmental surveys will be ordered and analyzed as they come in. The lease will be verified, title work will be done and numbers will be crunched. Meanwhile the deal will be funded by issuing and selling a private placement mortgage backed bond to fixed income investors. This is the most time consuming aspect of CTL lending (and all commercial mortgage lending for-that-matter), but can usually be achieved in about a month.
Once the last item on the underwriting checklist is done, the loan can be closed just-as-fast-as the lawyers can draw up documents and get it scheduled.