Unlock the Value | Sale-Leaseback

What is a Sale-Leaseback?

A sale-leaseback (SLB) occurs when a company sells the land and building used in its current business operations.  Simultaneously, the company leases it back under a long-term lease with the buyer.

Why do a Sale-Leaseback?

Companies do SLBs for a variety of reasons, but generally there are three main advantages:

  • Generate Cash – Quickly liquidate your real estate and get 100% of market value versus a typical 70% loan to value (LTV) loan which may require refinancing as soon as 3-5 years.
  • Reduce Taxes – Deduct 100% of your rent expense versus only the interest portion of your debt.
  • Redeploy Capital – Use the net proceeds from your transaction in order to reinvest in a corporate purpose that produces higher yields than your real estate.

So how do you know if your business/asset is right for a SLB?  For a successful transaction, investors will be looking at the following:

  • Quality of Asset – Your real estate should be well-located and in good physical condition.
  • Credit Worthiness – You must have a solid business generating $5M – $100M in revenue.
  • Lease Structure – Your firm must be willing to commit to a long-term lease with fair market rents.

The Right Time is Now

Gaining in popularity, SLBs have increased to over $12 billion in transaction volume according to Real Capital Analytics.  The US economy has slowly but steadily recovered from the recession, and now under the new administration, there is a push for continued growth.  Companies need cash to grow and are turning to SLBs.

The net lease sector in commercial real estate has remained strong as there has been an influx in domestic and foreign capital, all looking for attractive, stable investments contrary to the volatile capital markets.  As interests rates begin to climb, we expect to see tenants wanting to take advantage of locking into long-term leases in efforts to control operating expenses for years to come.

No doubt, there are a lot of reasons to consider a sale-leaseback right now.  Let us walk you through the process to determine the right strategy that will allow you to maximize the benefits of selling your real estate and entering into an advantageous lease.  We will thoroughly explore the right balance of financial returns and operational flexibility, diligently set up the appropriate lease structure and outline the tax implications resulting from the SLB, all to maximize your capital.

NetCMG MediaUnlock the Value | Sale-Leaseback