In a sale-leaseback (or sale and leaseback), a business sells its industrial real estate to an investor for money and concurrently enters into 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 value and converts an otherwise illiquid property into working capital, while maintaining complete functional control of the facility. This is a terrific capital tool for business not in business of owning property, as their property properties represent a significant money worth that could be redeployed into higher-earning sectors of their company to support development.

What Are the Benefits?

Sale-leasebacks are an appealing capital raising tool for many business and offer an option to standard bank financing. Whether a company is aiming to buy R&D, broaden into a new market, fund an M&A deal, or just 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 organization operations and development initiatives with higher equity returns.
- 100% market price realization of otherwise illiquid properties compared to debt alternatives.
- Alternative capital source when traditional financing is not available or restricted.
- Ability to maintain functional control of realty with no interruption to day-to-day operations.
- Potential to acquire a long-term partner with the capital to money future expansions, constructing remodellings, energy retrofits and more.

Who Gets approved for a Sale-Leaseback?

There are numerous aspects that determine whether a sale-leaseback is the ideal fit for a company. To be qualified, companies must satisfy the following requirements:

Own Their Real Estate

The very first and most apparent requirement for certification is that the company owns its real estate or have an option to buy any existing leased area. Manufacturing facilities, corporate headquarters, retail locations, and other kinds of realty can be prospective prospects for a sale-leaseback. Unlocking the value of these locations and redeploying that capital into greater yielding parts of business is a key chauffeur for companies pursuing sale-leasebacks.

Be Willing to Commit to Operating in the Space

While the term of the lease in a sale-leaseback can vary, most financiers will want a dedication from a future tenant to occupy the area for a 10+ year term. Assets crucial to a business's operations are frequently good prospects for a sale-leaseback since a company wants to sign a long-lasting lease for those locations. This makes it a more attractive investment for sale-leaseback investors 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 need to be investment-grade quality to pursue a sale-leaseback. However, some credit history is usually needed so the sale-leaseback investor understands that the 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 revenue and cashflow from which to judge their creditworthiness; however, they may need to discover a financier who has the underwriting capabilities to examine their organization. Minimum profits and success requirements will differ based company to firm, so it's best to ask about this upfront before engaging with any specific sale-leaseback partner.

Qualities to Try to find in a Sale-leaseback Investor

When thinking about a sale-leaseback, finding the right purchaser is important in order to make sure a company is making the most of the value of their property. Here are a few of the crucial qualities to try to find in a sale-leaseback financier.

Experience

An experienced financier can offer more flexibility and guide sellers through the procedure, producing tailored deal structures to satisfy all of a company's special objectives and avoid possible pitfalls. Additionally, skilled investors can usually browse all market cycles and use certainty of close (some in just thirty days), 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 necessary, especially when handling timing restrictions. All-equity purchasers do not have to stress over third-party financial obligation or financing contingencies, suggesting there's less possibility of a re-trade in the late phases of settlement. All-equity buyers can also usually close quicker as they do not require to wait on approval from banks or loan providers, providing a smoother process in general.

A Long-Term Real Estate Holder

Finding a long-lasting investor is essential. Sellers don't desire somebody who is just seeking to flip a residential or commercial property for a fast earnings. Instead, try to find a financier 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 industries, residential or commercial property types and locations require distinct competence to efficiently and efficiently partner with sellers to structure a deal that address the requirements of all parties. Working with a financier with experience in the company's particular industry, residential or commercial property type and/or nation ensures that all possible dangers and chances are considered before entering into a sale-leaseback arrangement. For instance, if you are thinking about a cross-border, multi-country deal it's crucial you look for a financier with local groups in those countries who speak the language and comprehend the local guidelines.

When looking into a sale-leaseback, another term companies might experience is a build-to-suit. In a build-to-suit, a business funds and handles the building and construction of a new center or growth of an existing one to fulfill the specifications of a prospective or existing occupant. Upon completion, the business participates in a long-term lease, similar to a sale-leaseback. For business searching for a brand-new residential or commercial property, this is an excellent solution that requires no upfront capital.

The Main Benefits of Build-to-Suits Include:

- Development of a custom-built center in a place of the business's choice.
- No upfront capital required, allowing the company to maintain capital for its company.
- Ability to maintain functional control of the facility post building.
- Potential to acquire a long-lasting partner with the capital to money future growths, developing remodellings, energy retrofits and more.

While sale-leasebacks might seem intimidating for companies who have actually never pursued one, dealing with a knowledgeable and well-capitalized financier can make the procedure easy. When working with an investor like W. P. Carey, sellers can guarantee they are dealing with a partner that can understand the unique requirements of their company while having the added option of closing in just one month and the included advantage of getting a long-term partner who can support its tenants through versatility and additional capital need to they want to pursue follow-on jobs such as growths or energy retrofits as their business and property requires develop. In all market conditions, sale-leasebacks are an excellent financing tool to unlock otherwise illiquid capital that can be reinvested into a business's company to support future growth.

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