In a sale-leaseback (or sale and leaseback), a business sells its industrial property to a financier for money and concurrently gets in 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 asset into working capital, while maintaining complete functional control of the facility. This is a terrific capital tool for business not in the service of owning property, as their real estate assets represent a substantial money worth that could 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 lots of companies and provide an option to standard bank financing. Whether a business is seeking to purchase R&D, expand into a new market, fund an M&A transaction, or just de-lever, sale-leasebacks act as a tactical capital allocation tool to money both internal and external growth in all market conditions.

Key Benefits Include:

- Immediate access to capital to reinvest in core organization operations and growth initiatives with greater equity returns.
- 100% market price awareness of otherwise illiquid assets compared to debt options.
- Alternative capital source when standard funding is not available or restricted.
- Ability to maintain operational control of property without any disruption to day-to-day operations.
- Potential to get a long-lasting partner with the capital to fund future expansions, building restorations, energy retrofits and more.

Who Gets approved for a Sale-Leaseback?

There are several aspects that determine whether a sale-leaseback is the ideal suitable for a business. To be eligible, companies need to fulfill the following requirements:

Own Their Property

The first and most obvious criterion for credentials is that the company owns its property or have an option to buy any existing leased space. Manufacturing centers, corporate headquarters, retail locations, and other forms of real estate can be potential candidates for a sale-leaseback. Unlocking the worth of these areas and redeploying that capital into higher yielding parts of the business is a key motorist 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 occupant to occupy the space for a 10+ year term. Assets important to a business's operations are typically great prospects for a sale-leaseback because a business is ready to sign a long-term lease for those places. This makes it a more appealing investment for sale-leaseback investors as they have more security that the tenant 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 generally needed so the sale-leaseback financier understands that the company can make rental payments over the course of the lease. Sub-investment-grade organizations are still eligible as long as they have a strong performance history of earnings and cashflow from which to judge their credit reliability; however, they may need to discover a financier who has the underwriting abilities to evaluate their service. Minimum profits and profitability requirements will differ based company to firm, so it's finest to inquire about this upfront before engaging with any particular sale-leaseback partner.

Qualities to Search for in a Sale-leaseback Investor

When thinking about a sale-leaseback, discovering the ideal buyer is critical in order to guarantee a company is maximizing the value of their realty. Here are a few of the key qualities to look for in a sale-leaseback investor.

Experience

A well-informed investor can provide more versatility and guide sellers through the procedure, creating tailored offer structures to fulfill all of a business's unique goals and avoid possible risks. Additionally, experienced financiers can typically browse all market cycles and offer certainty of close (some in as little as 1 month), guaranteeing the deal closes in a timeframe that works for the company and their financial requirements.

An All-Equity Buyer

When trying to find a sale-leaseback partner, finding an all-equity buyer is essential, particularly when handling timing restraints. All-equity purchasers don't have to stress over third-party financial obligation or financing contingencies, implying there's less probability of a re-trade in the late phases of negotiation. All-equity purchasers can likewise generally close much faster as they do not require to wait on approval from banks or lenders, providing a smoother process overall.

A Long-Term Real Estate Holder

Finding a long-lasting investor is crucial. Sellers do not want someone who is merely wanting to flip a residential or commercial property for a fast profit. Instead, look for an investor who will stay a committed partner to you over the long run and one that can offer capital for future projects such as growths, restorations, or energy retrofits.

Diverse Knowledge and Experience

Different markets, residential or commercial property types and locations require distinct proficiency to efficiently and effectively partner with sellers to structure an offer that attend to the needs of all parties. Dealing with an investor with experience in the company's particular industry, residential or commercial property type and/or country guarantees that all prospective threats and opportunities are considered before entering into a sale-leaseback arrangement. For example, if you are considering a cross-border, multi-country transaction it's vital you try to find an investor with regional groups in those countries who speak the language and comprehend the regional guidelines.

When checking out a sale-leaseback, another term companies might experience is a build-to-suit. In a build-to-suit, a company funds and handles the building of a brand-new facility or expansion of an existing one to satisfy the specifications of a prospective or existing tenant. Upon conclusion, the business enters into a long-lasting lease, similar to a sale-leaseback. For companies trying to find a new residential or commercial property, this is a great solution that requires no in advance capital.

The Main Benefits of Build-to-Suits Include:

- Development of a custom-built center in a location of the business's choice.
- No upfront capital required, making it possible for the business to preserve capital for its company.
- Ability to maintain operational control of the facility post construction.
- Potential to get a long-lasting partner with the capital to fund future expansions, developing renovations, energy retrofits and more.

While sale-leasebacks might seem daunting for business who have actually never pursued one, dealing with an experienced and well-capitalized financier can make the process easy. When working with a financier like W. P. Carey, sellers can ensure they are working with a partner that can understand the distinct requirements of their service while having actually the added option of closing in just 1 month and the included advantage of gaining a long-term partner who can support its tenants through flexibility and extra capital should they want to pursue follow-on tasks such as growths or energy retrofits as their company and genuine estate requires evolve. In all market conditions, sale-leasebacks are a terrific funding tool to unlock otherwise illiquid capital that can be reinvested into a business's service to support future growth.

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