In a sale-leaseback (or sale and leaseback), a business offers its business realty to an investor for cash and at the same time participates in a long-term 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 converts an otherwise illiquid asset into working capital, while keeping complete operational control of the facility. This is a terrific capital tool for companies not in the organization of owning realty, as their realty assets represent a substantial money value that could be redeployed into higher-earning sections of their company to support development.

What Are the Benefits?

Sale-leasebacks are an attractive capital raising tool for many companies and use an option to conventional bank funding. Whether a business is looking to invest in R&D, broaden into a new market, fund an M&A deal, or simply de-lever, sale-leasebacks function as a tactical capital allocation tool to fund both internal and external development in all market conditions.

Key Benefits Include:

- Immediate access to capital to reinvest in core service operations and development efforts with greater equity returns.
- 100% market worth awareness of otherwise illiquid possessions compared to financial obligation alternatives.
- Alternative capital source when traditional funding is not available or restricted.
- Ability to retain functional control of property without any interruption to daily operations.
- Potential to get a long-lasting partner with the capital to fund future expansions, building restorations, energy retrofits and more.

Who Qualifies for a Sale-Leaseback?

There are several factors that identify whether a sale-leaseback is the right fit for a company. To be eligible, business should fulfill the following criteria:

Own Their Real Estate

The first and most apparent criterion for credentials is that the business owns its property or have an alternative to acquire any existing leased area. Manufacturing facilities, corporate head offices, retail locations, and other kinds of property can be potential prospects for a sale-leaseback. Unlocking the worth of these places and redeploying that capital into greater yielding parts of business is an essential motorist for companies pursuing sale-leasebacks.

Be Willing to Commit to Operating in the Space

While the regard to the lease in a sale-leaseback can vary, many financiers will want a dedication from a future tenant to inhabit the area for a 10+ year term. Assets important to a company's operations are often good candidates for a sale-leaseback because a company is willing to sign a long-term lease for those locations. This makes it a more appealing financial 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 history is generally needed so the sale-leaseback investor knows that business can make rental payments throughout the lease. Sub-investment-grade organizations are still eligible as long as they have a strong track record of income and cashflow from which to evaluate their creditworthiness; however, they might need to find an investor who has the underwriting abilities to examine their organization. Minimum profits and success requirements will vary based company to firm, so it's best to ask about this upfront before engaging with any particular sale-leaseback partner.

Qualities to Search for in a Sale-leaseback Investor

When considering a sale-leaseback, finding the best buyer is important in order to make sure a company is optimizing the worth of their genuine estate. Here are a few of the essential qualities to search for in a sale-leaseback investor.

Experience

An educated investor can provide more versatility and guide sellers through the process, creating tailored offer structures to satisfy all of a company's unique goals and avoid potential pitfalls. Additionally, skilled investors can generally browse all market cycles and offer certainty of close (some in as low as one month), guaranteeing the deal closes in a timeframe that works for the business and their fiscal requirements.

An All-Equity Buyer

When looking for a sale-leaseback partner, discovering an all-equity buyer is necessary, particularly when handling timing restraints. All-equity buyers don't have to fret about third-party financial obligation or funding contingencies, meaning there's less possibility of a re-trade in the late phases of negotiation. All-equity buyers can likewise usually close much faster as they do not need to wait on approval from banks or lending institutions, supplying a smoother procedure overall.

A Long-Term Real Estate Holder

Finding a long-term financier is crucial. Sellers don't want someone who is just wanting to flip a residential or commercial property for a fast profit. Instead, look for an investor who will stay a dedicated partner to you over the long term and one that can supply capital for future projects such as growths, restorations, or energy retrofits.

Diverse Knowledge and Experience

Different markets, residential or commercial property types and areas require special knowledge to efficiently and successfully partner with sellers to structure a deal that address the needs of all celebrations. Working with an investor with experience in the business's particular market, residential or commercial property type and/or nation guarantees that all possible dangers and opportunities are considered before entering into a sale-leaseback agreement. For example, if you are thinking about a cross-border, multi-country transaction it's vital you search for a financier with regional teams in those countries who speak the language and understand the local rules.

When checking out a sale-leaseback, another term companies may encounter is a build-to-suit. In a build-to-suit, a company funds and handles the building of a brand-new center or growth of an existing one to satisfy the specifications of a potential or existing occupant. Upon completion, the company enters into a long-lasting lease, similar to a sale-leaseback. For business looking for a new residential or commercial property, this is a fantastic option that needs no upfront capital.

The Main Benefits of Build-to-Suits Include:

- Development of a custom-made facility in a place of the company's choice.
- No upfront capital required, enabling the company to maintain capital for its business.
- Ability to keep operational control of the center post building.
- Potential to gain a long-lasting partner with the capital to fund future expansions, developing remodellings, energy retrofits and more.

While sale-leasebacks may appear intimidating for companies who have never ever pursued one, working with a skilled and well-capitalized investor can make the procedure simple. When working with a financier like W. P. Carey, sellers can guarantee they are working with a partner that can comprehend the special requirements of their business while having actually the included choice of closing in as little as 30 days and the added advantage of acquiring a long-term partner who can support its tenants through versatility and additional capital ought to they want to pursue follow-on jobs such as expansions or energy retrofits as their service and realty needs evolve. In all market conditions, sale-leasebacks are a great funding tool to unlock otherwise illiquid capital that can be reinvested into a business's organization to support future development.

Think a sale-leaseback is right for your company? Contact our team today!