Real Estate Lease Sale Backs Program
A real estate sale leaseback makes equity work for the business.

What is a Real Estate Lease Sale Back Program?

Real estate sale leasebacks financing is when a business sells its commercial property for current market value and then instantly leases it back. They sell it to gain built?up equity which frees up capital which then in turn can be used to invest back into the business.
Leases are structured as absolute bondable triple? net leases, which means that the tenant retains complete operational control of the property and is responsible for all building repairs and maintenance, insurance, real estate taxes, etc. The only contact with the sale/leaseback investor is for payment of the rent

Real Estate Lease Sale Back Program

Real estate sale leaseback transactions are becoming more popular because they generate capital for immediate use within the business. It unlocks the value in the real estate. With real estate you can get more capital because of how fast it grows

There are many other benefits to this transaction as well, including . . .

Typical investor is a REIT or private investment fund. These are not banks so therefore able to avoid regulatory pressures. This allows flexibility!
Excellent for liquidity

How are Real Estate Lease Sale Back Program is priced?

• Investment grade credits can typically get initial cap rates (the ratio of the lease payments over the transaction value) of 7%?8% or better, BB credits are in the 8%, 9% range, and B and below credits are in the 9%? 12% range.

• In addition to the company’s credit, the location, quality and age of the real estate, as well as the term of the lease, will also affect the pricing.

• There will usually be increases in the lease payments over time. These bumps could be a fixed amount (typically 1%?3% per year) or tied to inflation, and could be annual or once every 5?10 years.

• A security deposit is usually required for poorer credits

Who do I market to and what are the desired property types for Real Estate Lease Sale Back Program?

Focus is on properties located in markets with healthy, recurring demand for the building type.

  • Banks and bank branches
  • Must be in metro areas
  • Has multiple use aspects
  • FDIC “Bridge Bank” affords probable new tenant if bank fails
  • Banks are starving for liquidity.
  • Sale/Leasebacks provide that.
  • Office complexes
  • Good Demographics
  • Good income stream
  • Warehouse / Distribution

Typically good demographics, close to highways

Real Estate Lease Sale Back Program Located in metro areas

  • Has multiple use aspects
  • Industrial / Distribution / Warehouse / Light Manufacturing
  • Those who are owner/occupants (they operate the manufacturing out of the building) and are looking for additional liquidity
  • Demographics are good (metro areas, easily accessible to highways, etc.)
  • Building has multiple use aspects. Easily converted to different property types

Private Equity Groups

Real estate is seen as a non?contributor to EBITDA, a primary financial gauge for determining valuations of PEG’s portfolio companies. Important when they want to sell companies they own, so no need in owning real estate

Helps with financing the acquisition

  • Other property types including:
  • Single buildings or portfolios of properties
  • retail of all types, including big boxes & movie theaters and some restaurants
  • medical of all types, including medical office, skilled nursing and hospitals
  • special use properties, such as schools and churches & tree farms/nurseries ground leases (dirt must be part of the collateral as well).

What is not desirable?

Property in rural areas

  • Chemical facilities
  • Plastic Injection molding
  • Textiles (unless in metro areas)
  • Furniture (unless in metro areas)
  • Property that will be prone to environmental issues

Real Estate Lease Sale Back Program Features and Benefits:

  • Liquidity, liquidity, liquidity. The balance sheet of a business is improved greatly and you retain control of the property. A sale/leaseback essentially provides 100% financing to the business owner. A seller/lessee who already owns the property can unlock the equity in the real estate and turn that equity into cash.
  • Since you will be leasing the property, you can defer a good portion of the tax liability. With a lease you can write?off the full payment each month, whereas with a regular loan only the interest payment can be written off.
  • Mortgage pre-payment penalties (if any) can be capitalized into the sale?leaseback transaction price.
  • Typical lease for commercial property may be for up to 25 years, which can lower your monthly payments considerably. This gives you more operating capital each month since your monthly payments will go back down some.
  • When you complete this transaction, guaranteed the full market value of property.
  • Tax advantages: By deducting lease payments, the lessee can write off the full cost of the real estate, including the portion that relates to land. The tax deduction may be accelerated because it is spread over the term of the lease rather than 39 years, the term typically used for depreciating commercial buildings.

Real Estate Lease Sale Back Program

If properly structured as an “operating lease,” the lease does not add short? or long-term debt or the real estate asset to the balance sheet. Thus, certain financial ratios, such as the debt?to?equity?ratio, the current?ratio and the return?on?assets?ratio are actually improved. Because Generally Accepted Accounting Principles (GAAP) omits this transaction from the balance sheet, the borrowing capacity of the seller/lessee may be increased. Beneficial when bank covenants allow parties additional debt if off?balance sheet.