Sale-Leasebacks Defined

  • A sale-and-leaseback is typically a commercial real estate transaction in which one party, often a corporation, sells its corporate real estate assets to another party, such as an institutional investor, or a real estate investment trust (REIT), and then leases the property back at a rental rate and lease term that is acceptable to the new investor/landlord.
  • The lease term and rental rate are based on the new investor/landlord’s financing costs, the lessee’s credit rating, and a market rate of return, based on the initial cash investment by the new investor/landlord.

 Benefits of Sale-Leasebacks: Seller/Lessee

  • No change in operational control of the real estate.
  • Company controls the terms of the lease including rent, lease and renewal terms.
  • Excellent source of alternate financing in today’s difficult credit environment.
  • Alternative to debt financing for build-to-suit projects.
  • Help finance expansion of the existing business
  • Help pay down debt and improve the company’s balance sheet
  • Typically short transaction closing process.
  • Company raises inexpensive capital without giving up ownership interest.

Benefits of Sale-Leasebacks: Investor/Landlord

  • Long-term, fully leased asset with a guaranteed income stream
  • For income-tax purposes, the investor/landlord can take an expense deduction for an investment in a depreciable property to allow for the recovery of the cost of the investment
  • Fair return on the investment in the form of rent during the lease term, and ownership of an already occupied reliable tenant

* Sale-Leaseback Case Studying coming soon…