Tenant selection is critical to commercial real estate investing. After all, landlords seeking want assurances that tenants will pay rent on time, add value by attracting both foot traffic and other quality tenants, and reduce the property’s risk profile. One way to achieve this aim is identify “credit” or “investment grade” tenants with strong ratings from the nation’s major credit reporting agencies, including Fitch, Moody’s and the S&P.
While an investment-grade credit rating can offer investors a degree of confidence in tenants’ financial capabilities, it does not mean that non-credit tenants are bad. It merely means those tenants are too small or not as widely known as the companies that the rating agencies do follow. Moreover, a well-known company with an excellent credit rating today is not completely void of risks during the terms of a lease. Changes to operations or broader economic conditions can result in credit rating cuts at any time. For these reasons, it is recommended that investors work with private equity real estate firms experienced working with credit agencies and monitoring tenants’ credit risks on an ongoing basis.
With offices in Miami, Orlando, New York City and Geneva, the team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email firstname.lastname@example.org.