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Investment Real Estate

Sale leasebacks allow business owners to monetize their real estate assets and re-deploy capital. These transactions occur when a company sells its property currently being used in its business operations and simultaneously leases it back under a long-term lease with the buyer. Sale-leaseback transactions are great mechanisms to transfer downstream valuation risk and reallocate financial resources, while securing maximum value and occupancy rights from a long-term lease. Most sale-leaseback transactions sell at a premium compared to like-kind properties that are non-sale-leaseback properties.

As experts in sale-leaseback transactions, our team first learns and analyzes each clients’ unique objectives, and then builds a strategy that allows them to maximize the benefits of selling their real estate and leasing it back. We then strategically align our clients with multiple potential investors, while maximizing competition and executing the most valuable solution. Our process is geared towards optimizing the property value, allowing our clients to actualize the highest possible price, along with favorable lease terms that meet their needs.

Seller Advantages of a Sale Leaseback

  • Maximizes the value of the real estate
    • Typically trades at a premium
    • Allows access to 100% of the property’s value
    • Mortgage financing generally provides 50-65% of fair asset value
  • Increases overall sale proceeds for business owners contemplating selling their company
    • If the real estate is left in the sale transaction, the full value is seldom realized, as the EBITDA multiple often does not value the company’s real estate at its true, fair market value
  • Provides additional tax deductions by reducing the seller’s business income tax liability caused by the appreciation in value of its real estate asset
    • Seller can deduct 100% of all rent payments vs. only the interest portion of their debt
  • Helps reduce debt-to-equity ratio (improves the company’s balance sheet)
    • Reduces long-term debt
    • Increases available cash
    • Increases shareholder equity
    • Eliminates depreciating asset
    • Improves ratios often measured in other debt covenants (debt to equity, net worth, profitability)
    • Improves performance metrics (ROA, ROI)
  • Converts illiquid asset to cash
    • Company owns illiquid, non-core asset
  • Increases return on investment & shareholder value
  • Offers expedited closing time
    • Often completed in 60 days or less
  • Provides significant bargaining power in structuring the property lease and in negotiating an acceptable lease agreement
    • The seller can work with the buyer to include options that will provide for future expansion and sublease of the property
  • Assists in financing expansion of the existing business
    • New equipment & technology
    • New business opportunities/strategic acquisitions
    • Facility upgrades
    • Build-to-suit financing
  • Controls operating expenses for years to come (due to climbing interest rates)
  • Reduces risks associated with owning real estate, such as cyclical market variations

Investor Advantages of a Sale Leaseback

  • Serves as a long-term, fully-leased, secured investment
    • Rent payments are guaranteed for a specified period of time
    • Depreciable asset is already occupied by a reliable tenant
  • Allows an expense deduction for an investment in a depreciable property (to allow for the recovery of the cost of the investment)
    • The new owner has the opportunity to capture any appreciation in the real estate
    • Hedges against inflation, depending on the lease term and escalations
  • Provides the ability to invest in real estate with a tenant who is already familiar with the property
  • Offers less risk of tenant default due to the new lease in place
  • Presents lower management costs and risks, as operating expenses and vacancies are lessened due to the longer-term tenancy

Ready to Get Started?

Call us at (262) 569-5922 or you can email us at info@thepropertyadvisor.com

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