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Top Sale Leaseback Strategies

December 19, 2017

 

What is a sale leaseback?

 

A sale leaseback transaction allows a company to sell corporately owned, or a related party’s personally owned real estate and simultaneously lease it back under a term lease with the buyer (investor) of the real estate. The leases are typically 10 to 20 years with an additional 10 to 20 years (or more) of renewal options which provide long term control of the asset.

 

Why enter into a sale leaseback?

 

Real estate is typically a non-performing asset on the company books.  A sale leaseback allows the company to reinvest the net proceeds from the sale leaseback at a higher rate of return such as:

 

  • Acquiring another company

  • Buying another building

  • Expanding the company

  • Paying down debt

  • Stock repurchases

 

A sale leaseback is also an excellent mechanism to raise capital to:

 

  • Replenish working capital

  • Buy-out a partner

  • Provide the capital that allows a senior stakeholder to retire and structure an orderly transition to the next generation of owners

  • Provide for estate planning

  • Pay down an under-funded pension liability

 

What are the benefits of a sale leaseback?

 

A sale leaseback allows the seller of the real estate to:

  • Monetize 100% of the of the leased fee value of the real estate versus 65% to 75% of the fair market value limit in mortgage financing. (The leased fee value generally exceeds the fair market value resulting in additional proceeds to the seller).

  • Retain operational control of the real estate through the leaseback

  • Control the terms of the lease including rent, lease, and renewal terms

  • Tap into a source of alternate financing in today’s challenging credit environment

  • Use an alternative to debt for financing build-to-suit projects

  • Take advantage of a typically short transaction closing process

  • Enhance the company's liquidity

  • Raise inexpensive capital without giving up control of the real estate

  • Redeploy sale leaseback proceeds into the operating business thereby earning a higher rate of return than the real estate asset

 

Maximizing Enterprise Value:

 

Real estate is often undervalued when included in a business sale even though an MAI appraisal may have been conducted to assess the value. A sale leaseback buyer typically has a “leased fee appraisal” which calculates the asset value by the annual rent divided by the capitalization rate. The capitalization rate is the rate of return on a real estate investment property based on the income that the property is expected to generate. The “leased fee appraisal” valuation is often significantly greater than an MAI appraisal.

 

How can Weber Wood Medinger/CORFAC International help with a sale leaseback?

 

Experience.  WWM has completed sale leaseback transactions on over 75 properties with an aggregate value in excess of $450,000,000. We are engaged by private equity firms, privately held companies, and public companies to monetize real estate assets. Our partners have deep knowledge bases including membership in individual professional designations including SIOR and CPA. 

 

Click for a Sample of WWM Completed Transactions

 

 

Accountability:  We are your single point of contact.  Our team is personally involved in every stage of an assignment. During the course of the transaction we manage the process, communicate when necessary with the client, but minimize direct client involvement.

 

Commitment:  WWM is interested in long-term relationships with our clients.  We spend

significant time understanding our clients' businesses in order to deliver superior advice and results, every time.

Reach:  WWM has been working globally for 25 years and has built relationships with brokers, real estate advisors, and service providers throughout North America and beyond.

 

Scalability: No project is too small or too large - we can assist with small branch office leases to mission critical manufacturing facilities and corporate headquarters.  We realize our clients have a wide variety of needs and we are equipped to deliver results regardless of project scope.

 

Integrity:  Nothing is more important to us or our clients than integrity and trust. WWM does not allow conflicts of interest to cloud any assignment.

 

For Additional Information Please Contact:

 

Blair Wood, SIOR

PH: 216.337.3333

EM: bwood@wwmrealestate.com 

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