Tuesday, April 10, 2007
Credit vs. Non-Credit Tenants
There is more risk - as the market suggests - in non-credit rated tenants. The mom and pop nail salon seems more risky than the Quizno's. A retail center of Quizno-quality name brands will sell at a lower cap rate than a center made up of neighborhood service providers. The difference in costs also is evident in financing. 5.9% vs. 6.78% is the difference in 10 year fixed money from credit to non-credit tenants as quoted from one lender's rate sheet today. Fair, yes. Higher risk/reward center will also command higher cost of capital. I suggest that the higher upside would be in a neighborhood center that can be converted to name brand tenants over time.