Sale And Leaseback: An Option For Building Owners That Need Capital

More building owners are taking advantage of sale and leaseback opportunities than ever before. Building owners are grappling with the current economic uncertainties and cash-flow issues that a lot of other small business owners are dealing with. Market observers are noticing a trend of cash-strapped building owners that are using the commercial space in their own buildings opting to sell and leaseback the same space from new building owners.

Selling your building in a sale and leaseback transaction is gaining in popularity due to the security that it can provide a business owner. Owning a building can be costly and many business owners need to keep as much cash flowing as possible. Therefore, a sale and leaseback transaction can really help a business remain profitable.

A building owned by a company can be sold in a deal that allows the old owner to leaseback the space for a term of about 10 to 15 years.

This type of transaction can be a lifesaver for a business owner looking to limit their risk exposure. A sale and leaseback transaction is also a great way to inject capital into a business. This type of sale can also be a huge win-win for the new building owners. The new building owners will have a happy tenant with the ability to pay rent from day one.

There is not a lot of downside to leasing commercial space to a serious business owner that has the capital to pay the rent. Knowing that they have a lot of capital from the sale is also a bonus.

Investors are looking for sale and leaseback opportunities

More and more investors are looking for sale and leaseback opportunities due to the recent track record of success with these types of investments. Industrial properties are leading the way in this type of transaction.

The US and China trade war and the global downturn in consumer goods are factoring into these concerns. China’s economic slowdown is having an effect on many businesses across the US.

These sale and leaseback deals allow a company to release cash to provide extra working capital. This capital can also be used to finance the expansion of an existing business, purchase new equipment, or invest in different opportunities.

There all sorts of companies and organizations looking into sale and leaseback options. There are logistic companies, industrial firms, governments, universities, schools, and hospitals taking the sale and leaseback option. It makes sense to take the capital and find the most useful way to apply it to any type of organization. Investors win because owning the property with cash flow allows them to borrow against it and build their portfolios.

These types of deals also allow the business to operate as usual. There is very little disruption in the day-to-day business with a sale and leaseback transaction. Building owners can also work in the option to buy the building back at the end of the lease. There are many options with these sale and leaseback transactions.

The demand is rising for sale and leaseback properties

The demand for sale and leaseback properties has always been there. However, demand is rising all the time. This is due to the success that institutional investors such as real estate investment trusts (REITs) are having. REITs, insurance and pension funds and government-linked corporations are more solid long-term investments due to the long-term income and potential for growth in the asset’s value over time.

Usually, the investors taking advantage of the sale and leaseback offers have a substantial amount of funds starting at tens of millions of dollars. So a sale and leaseback property that carries a net rental yield of some 5% to 7% over a minimum ten-year lease period is a solid investment.

The long-term liabilities aren’t as big of a concern due to the secure cash flows and longevity of the lease agreement. Most commercial lease terms are much shorter so a long-term lease is rare for investors to find. This leads to strong demand from investors looking for a solid long-term cashflow positive property.

Industrial properties such as warehouses, factories, and logistics facilities can be a goldmine for investors. This is due to the 7% net yield these properties can fetch after deducting the building insurance, assessment tax, and maintenance cost. These types of transactions are preferred by investors due to the growing industrial market.  They are also much easier to manage than commercial office buildings and other multi-tenant options.

Local and international governments are also opting for sale and leaseback deals to improve their fiscal position. Government institutions like any business can have cashflow issues. They also own land and buildings so a sale and leaseback transaction can help them too.

Prospective sellers and buyers

Building owners that are in need of cashflow help should look into the estimated value under different leaseback periods.

A building that is vacant when sold is worth less than a building that has a tenant already in place. A building with a longterm tenant also brings more value than a tenant with a short lease.

The longer the lease term the more attractive the deal is to investors. Investors do not want to look for tenants due to the hassle and cost involved. Therefore, a 10-year minimum lease deal can work for both parties.

A short lease term can also appeal to investors if the building has strong development potential. The strength of the business will also come into play when investors are making their decision to buy.

If your business looks like it will be in business for 10 to 15 years is a more solid investment.

How do you start?

We encourage you to contact us should you want more to learn more about our CRE services. Feel free to reach out to discuss your needs or how we can help at any time.

We are always glad to discuss corporate real estate with business owners considering their options. There is also no charge or obligation when it comes to having a discussion. Call us or shoot us an email today so we discuss your needs.

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