A sale-leaseback is a financial management tool that can be utilized by an organization to provide itself with a cash infusion. Under a sale-leaseback transaction, a company that owns its real estate sells the real property to an investor and then leases it back for a period of time, typically for a longer term.
This transaction transfers an asset off the balance sheet and replaces it with cash. It also generally “releases” the property’s hidden value – the difference between market value and book value – so that the company’s net worth is enhanced. Both public and private companies that are financially healthy, as well as those that may be struggling with cash flow problems, utilize sale-leasebacks. Companies use the cash for a variety of corporate needs including reduction of commercial debt, construction of new facilities, business expansion, acquisitions or enhancing the overall financial value of the company.
A diversified group of assets qualify for sale-leasebacks, including: corporate offices, manufacturing facilities, warehouse and distribution facilities, and single-tenant retail buildings, to name a few.
The price an investor is willing to pay will depend on the rental rate the seller/tenant will pay, the creditworthiness of the seller/tenant, the length of lease term and residual value of the property. An investment grade tenant with a lease term of 10-15 years can command a lower yield to the investor, which will result in a higher sale price than a non-investment grade tenant with a short-term lease.
Sale-leasebacks are an excellent source of alternative financing for companies that own real estate and are looking to create cash or enhance the value of their company. Our team of advisors is experienced in structuring transactions of this nature for Sellers from various industries.
Services Typically Provided
- Market Analysis
- Identify Target Market(s)
- Identify Investors
- Credit Review
- Financial Analysis
- Contract Negotiation
- Lease Negotiation
- Due Diligence Coordination