In a sale-leaseback (or sale and leaseback), a company sells its commercial realty to a financier for cash and all at once participates in a long-lasting lease with the new residential or commercial property owner. In doing so, the company extracts 100% of the residential or commercial property's value and transforms an otherwise illiquid property into working capital, while preserving complete functional control of the facility. This is a fantastic capital tool for business not in the service of owning property, as their realty properties represent a significant money worth that might be redeployed into higher-earning sectors of their service to support growth.

What Are the Benefits?

Sale-leasebacks are an attractive capital raising tool for many business and provide an option to traditional bank financing. Whether a business is seeking to buy R&D, expand into a new market, fund an M&A deal, or just de-lever, sale-leasebacks work as a tactical capital allocation tool to money both internal and external development in all market conditions.

Key Benefits Include:

- Immediate access to capital to reinvest in core organization operations and growth efforts with greater equity returns.
- 100% market price realization of otherwise illiquid assets compared to debt options.
- Alternative capital source when conventional funding is not available or limited.
- Ability to retain functional control of realty without any interruption to daily operations.
- Potential to get a long-term partner with the capital to money future growths, constructing remodellings, energy retrofits and more.

Who Qualifies for a Sale-Leaseback?

There are several factors that identify whether a sale-leaseback is the best fit for a business. To be qualified, business should meet the following requirements:

Own Their Property

The very first and most apparent requirement for qualification is that the company owns its genuine estate or have a choice to acquire any existing leased area. Manufacturing facilities, home offices, retail places, and other kinds of genuine estate can be prospective candidates for a sale-leaseback. Unlocking the worth of these places and redeploying that capital into higher yielding parts of the organization is a key chauffeur for business pursuing sale-leasebacks.

Be Willing to Commit to Operating in the Space

While the term of the lease in a sale-leaseback can differ, many financiers will desire a commitment from a future tenant to inhabit the area for a 10+ year term. Assets vital to a business's operations are typically excellent candidates for a sale-leaseback since a company wants to sign a long-lasting lease for those areas. This makes it a more appealing investment for sale-leaseback investors as they have more security that the renter will remain in the facility for the long term.

Have a Strong Credit Profile

Companies do not need to be investment-grade quality to pursue a sale-leaseback. However, some credit rating is usually needed so the sale-leaseback investor understands that business can make rental payments throughout the lease. Sub-investment-grade services are still eligible as long as they have a strong track record of income and cashflow from which to judge their credit reliability; nevertheless, they might require to find an investor who has the underwriting capabilities to evaluate their business. Minimum earnings and profitability requirements will vary based company to company, so it's finest to ask about this upfront before engaging with any particular sale-leaseback partner.

Qualities to Try to find in a Sale-leaseback Investor

When considering a sale-leaseback, discovering the best purchaser is important in order to guarantee a company is optimizing the value of their property. Here are some of the essential qualities to look for in a sale-leaseback investor.

Experience

An experienced financier can provide more flexibility and guide sellers through the procedure, developing tailored offer structures to meet all of a business's special objectives and prevent possible risks. Additionally, knowledgeable investors can normally navigate all market cycles and use certainty of close (some in as little as 1 month), ensuring the offer closes in a timeframe that works for the business and their financial requirements.

An All-Equity Buyer

When searching for a sale-leaseback partner, finding an all-equity purchaser is very important, especially when dealing with timing constraints. All-equity purchasers do not need to stress about third-party financial obligation or funding contingencies, indicating there's less likelihood of a re-trade in the late stages of settlement. All-equity buyers can likewise typically close faster as they do not need to wait on approval from banks or loan providers, offering a smoother procedure overall.

A Long-Term Real Estate Holder

Finding a long-lasting investor is important. Sellers don't want someone who is merely aiming to flip a residential or commercial property for a quick earnings. Instead, search for an investor who will stay a dedicated partner to you over the long term and one that can provide capital for future projects such as expansions, remodellings, or energy retrofits.

Diverse Knowledge and Experience

Different industries, residential or commercial property types and places require distinct expertise to efficiently and effectively partner with sellers to structure a deal that resolve the needs of all parties. Dealing with an investor with experience in the business's specific market, residential or commercial property type and/or country ensures that all prospective threats and chances are thought about before entering into a sale-leaseback contract. For instance, if you are considering a cross-border, multi-country transaction it's crucial you look for a financier with regional groups in those countries who speak the language and comprehend the regional rules.

When checking out a sale-leaseback, another term business may come across is a build-to-suit. In a build-to-suit, a company funds and handles the building and construction of a brand-new center or growth of an existing one to fulfill the requirements of a prospective or existing renter. Upon conclusion, the company participates in a long-term lease, comparable to a sale-leaseback. For companies trying to find a new residential or commercial property, this is a terrific option that needs no in advance capital.

The Main Benefits of Build-to-Suits Include:

- Development of a customized center in a location of the business's choice.
- No in advance capital needed, making it possible for the business to preserve capital for its company.
- Ability to keep functional control of the facility post construction.
- Potential to acquire a long-lasting partner with the capital to fund future growths, building renovations, energy retrofits and more.

While sale-leasebacks might seem intimidating for business who have actually never pursued one, dealing with a skilled and well-capitalized investor can make the procedure simple. When working with a financier like W. P. Carey, sellers can ensure they are dealing with a partner that can comprehend the distinct requirements of their company while having actually the included option of closing in as little as 30 days and the included advantage of acquiring a long-term partner who can support its renters through flexibility and extra capital ought to they wish to pursue follow-on projects such as expansions or energy retrofits as their company and property needs develop. In all market conditions, sale-leasebacks are an excellent funding tool to unlock otherwise illiquid capital that can be reinvested into a company's business to support future growth.

Think a sale-leaseback is ideal for your business? Contact our team today!