In a sale-leaseback (or sale and leaseback), a company sells its industrial realty to a financier for cash and concurrently participates in a long-lasting lease with the brand-new residential or commercial property owner. In doing so, the company extracts 100% of the residential or commercial property's worth and converts an otherwise illiquid asset into working capital, while preserving complete operational control of the facility. This is a fantastic capital tool for companies not in business of owning property, as their realty possessions represent a significant cash worth that could be redeployed into higher-earning sectors of their organization to support development.

What Are the Benefits?

Sale-leasebacks are an attractive capital raising tool for numerous companies and use an alternative to traditional bank financing. Whether a company is seeking to purchase R&D, expand into a new market, fund an M&A deal, or simply 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 business operations and development initiatives with greater equity returns.
- 100% market price awareness of otherwise illiquid properties compared to financial obligation alternatives.
- Alternative capital source when conventional funding is unavailable or minimal.
- Ability to keep operational control of real estate without any disruption to everyday operations.
- Potential to acquire a long-term partner with the capital to fund future expansions, constructing remodellings, energy retrofits and more.

Who Qualifies for a Sale-Leaseback?

There are a number of elements that figure out whether a sale-leaseback is the ideal suitable for a business. To be eligible, companies must fulfill the following criteria:

Own Their Real Estate

The first and most apparent requirement for qualification is that the business owns its property or have a choice to buy any existing rented space. Manufacturing centers, business headquarters, retail places, and other types of property can be possible prospects for a sale-leaseback. Unlocking the value of these areas and redeploying that capital into greater yielding parts of the service is an essential chauffeur for business pursuing sale-leasebacks.

Want to Commit to Operating in the Space

While the term of the lease in a sale-leaseback can differ, most financiers will want a dedication from a future renter to inhabit the space for a 10+ year term. Assets important to a business's operations are frequently good prospects for a sale-leaseback because a business is ready to sign a long-lasting lease for those locations. This makes it a more attractive investment for sale-leaseback financiers as they have more security that the tenant will remain in the center for the long term.

Have a Strong Credit Profile

Companies do not require to be investment-grade quality to pursue a sale-leaseback. However, some credit rating is generally needed so the sale-leaseback financier understands 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 earnings and cashflow from which to judge their creditworthiness; however, they may need to discover a financier who has the underwriting capabilities to evaluate their business. Minimum income and profitability requirements will differ based company to company, so it's best to ask about this upfront before engaging with any specific sale-leaseback partner.

Qualities to Search for in a Sale-leaseback Investor

When considering a sale-leaseback, finding the ideal purchaser is important in order to ensure a company is maximizing the worth of their real estate. Here are some of the crucial qualities to search for in a sale-leaseback investor.

Experience

A well-informed financier can offer more versatility and guide sellers through the procedure, developing customized offer structures to meet all of a business's special goals and prevent possible pitfalls. Additionally, experienced financiers can normally browse all market cycles and provide certainty of close (some in just 30 days), making sure 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, finding an all-equity buyer is essential, particularly when handling timing constraints. All-equity purchasers do not have to stress about third-party debt or funding contingencies, meaning there's less likelihood of a re-trade in the late stages of settlement. All-equity purchasers can also usually close quicker as they do not need to wait on approval from banks or lenders, offering a smoother procedure in general.

A Long-Term Real Estate Holder

Finding a long-term financier is important. Sellers don't want somebody who is merely looking to flip a residential or commercial property for a fast profit. Instead, look for a financier who will stay a committed partner to you over the long run and one that can offer capital for future tasks such as expansions, restorations, or energy retrofits.

Diverse Knowledge and Experience

Different markets, residential or commercial property types and locations require special know-how to effectively and effectively partner with sellers to structure a deal that deal with the requirements of all celebrations. Working with an investor with experience in the company's specific market, residential or commercial property type and/or nation makes sure that all possible risks and opportunities are thought about before entering into a sale-leaseback agreement. For example, if you are thinking about a cross-border, multi-country deal it's vital you look for a financier with local teams in those countries who speak the language and understand the regional rules.

When looking into a sale-leaseback, another term companies may encounter is a build-to-suit. In a build-to-suit, a company funds and manages the construction of a new facility or growth of an existing one to meet the specs of a prospective or existing renter. Upon conclusion, the business gets in into a long-lasting lease, similar to a sale-leaseback. For companies looking for a new residential or commercial property, this is a terrific service that needs no upfront capital.

The Main Benefits of Build-to-Suits Include:

- Development of a custom-built facility in a place of the business's choice.
- No in advance capital needed, making it possible for the business to maintain capital for its service.
- Ability to keep operational control of the facility post building.
- Potential to acquire a long-lasting partner with the capital to fund future growths, building remodellings, energy retrofits and more.

While sale-leasebacks might appear frightening for business who have actually never pursued one, dealing with a skilled and well-capitalized financier can make the procedure easy. When dealing with a financier like W. P. Carey, sellers can ensure they are dealing with a partner that can comprehend the special requirements of their organization while having actually the included choice of closing in just 1 month and the included benefit of getting a long-term partner who can support its occupants through flexibility and additional capital ought to they want to pursue follow-on jobs such as growths or energy retrofits as their organization and property requires develop. In all market conditions, sale-leasebacks are a fantastic funding tool to unlock otherwise illiquid capital that can be reinvested into a company's service to support future growth.

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