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NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT MANAGERS 34 IN THE MIDST OF MONUMENTAL CHANGES like impending tax reform and clarity around new lease accounting standards from the U.S. Financial Accounting Standards Board and the International Accounting Standards Boards, many professional real estate investors are flocking to time-tested safeguards to mitigate this risk. What many are finding is that CTL financing is a reliable and viable solution. THE TRUTH ABOUT CTLs Forget what you think you know about a CTL. It's really just another type of attractive financing. And under the right circumstances, it has some real horsepower to offer borrowers. Simply put, a CTL is a type of mortgage financing that is structured as non-recourse to the borrower. And here's where it gets compelling – CTLs are delivered as a high-leverage debt product with a long-term fixed rate. While they typically apply to single properties with investment-grade tenants entering into long-term leases (think 15-20+ years), it's possible to create a structure where companies without a public investment grade FINDING FUNDING CERTAINTY IN UNPREDICTABLE TIMES credit rating can use one. What's more, in an interest rate environment that many are anticipating will likely go higher in the near future, CTLs can provide a stable source of long-term capital to lock in today's low rates. The beauty of a CTL comes at the end of the loan. As the borrower pays off the financing, it never relinquishes ownership of the asset; therefore retaining ownership of the property. Given its ability to potentially fund up to 100 percent of an asset's value, a CTL is highly effective for acquisition financing as well as "cash-out" refinancing. In either case, given the ability to provide a source of high leverage with zero equity contribution, the CTL can both provide a highly effective means of increasing assets under management as well as a reliable source of long-term capital to re-deploy into other investment opportunities. If structured properly, it's a safe source of long-term financing. While CTLs can be used on existing leases, financing economics can often be optimized if they are structured in tandem with lease formation under terms that are beneficial for CTL treatment. CTL economics are driven by tenant credit and lease quality. Done correctly, CTL financing enables borrowers to realize economics that are pegged to the corporate financial strength of the tenant, rather than their own cost of capital. William Cavagnaro, President, JLL Securities, LLC $ CTLs remain a reliable financing alternative. It's human nature to be skeptical about things you don't understand. For many, the concept of something like a credit tenant lease (CTL) harkens visions of an overly complex financing structure that is more trouble than it's worth. The reality is actually quite different though.