Better Cash Flow Management

For most net lease real estate investments, there are three critical financial processes that must be executed with precision to ensure stable and reliable cash flow: collecting income, paying expenses, and distributing the generated cash flow. Any deviation in this process can lead to significant issues, especially when debt is involved. To address these challenges, we have designed specific processes and protocols to ensure successful execution each month.

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The Challenge

Managing the monthly process of collecting rent and making debt payments may sound straightforward, but unexpected challenges can arise. Generally, the process runs smoothly 90% of the time, but the remaining 10% can expose net lease owners to financial risks, such as late fees or even loan defaults if not actively managed.

The most common method for collecting rent and paying debt service is via ACH, with electronic deposits for rent and electronic debits for loan payments. While this process is convenient, it can cause issues if things don't align perfectly in a given month. Moreover, additional cash management requirements, such as deposit account control agreements (DACA) and Cash Management Agreements (CMA), often required by CMBS Servicers, can add more complexity and processing time.

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Challenges with Base Rent Payment Collection

• Landlords cannot control the exact date when tenants pay rent.
• Landlords do not usually receive any notice when the ACH is initiated, so they must actively monitor payment receipt, typically by checking their bank account online.
• Many tenant leases do not require notification to the landlord when a payment has been made or missed, meaning landlords must actively manage the process every month.
• Some tenant leases require landlords to notify tenants if the rent is late, with late fees due only if the tenant does not pay within a specific period after receiving notice.
• Landlords must actively monitor rent collection and confirm when it has been deposited in their account.
• Tenants are not concerned with the date that landlord loan payments are drawn. While they may cooperate, it is ultimately not their responsibility.

Challenges with Debt Service Payments

• Debt service ACH draw dates are fixed and difficult to change quickly.
• Lenders are not obligated to notify borrowers if a debt service payment fails to clear.
• Most loans impose penalties if payments are not made on time.
• In some cases, loan defaults can occur without action on late payments.
• Landlords must actively monitor debt service payments and confirm when they have cleared their account.
• Many landlords do not keep a capital reserve in the bank accounts designated for the single-purpose entity (SPE) that owns the property.

In most cases, landlords must actively monitor their bank accounts between the 1st and 10th of each month to ensure everything is running smoothly. Any issues with the timing of tenant rent must be identified in real time to avoid problems with debt service payments. While manageable, this process requires constant attention.

The Solution

Trinety has developed a proprietary cash flow management system that automatically monitors rent collection, debt service payments, and the residual cash flow generated each month. Our system connects directly to financial institutions to track specific transactions in real time. Notifications are provided to inform you when rent is paid (or not paid), when debt service is paid (or not paid), and a monthly summary of residual cash flow once the process is complete. Gain peace of mind and eliminate the need to actively monitor multiple bank accounts every month with Trinety.

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