Engage in sale / lease back transactions?! Now? Are you kidding?! Why would a company seek to sell property at a time when prices are lower than they’ve been in decades? Does that make sense? Would any rational board of directors approve of a transaction where the company would sell its property at below the amount it originally paid, and then lock itself into a lease arrangement?
Buyers of properties through sale / lease back transactions face challenges, too. Depressed valuations conflict with sale revenue expectations of many sellers. Commercial financing, in the current environment, often requires as much as fifty percent equity. That makes it difficult for many investors to achieve their leverage and ROI expectations.
Actually, for some companies seeking to sell and lease back their properties (operative term is “some”), even in today’s poor economic and real estate environments, it could make sense to engage in sale / lease back transactions. However, in most cases, we’d likely recommend that companies wait until better times are on the horizon.
So, how could a company benefit by engaging in a sale / lease back transaction now? A number of possible benefits exist, including the ability to:
* Extract and repurpose liquidity (Perhaps other liquidity opportunities have been exhausted – note that capital extracted from real estate is not typically the least costly)
* Report a gain or loss in the current period for accounting or tax purposes
* Recognize a gain or loss associated with an acquisition or disposition
* Support a business exit strategy
* Fund an acquisition or other initiative
* Secure funds for capital and / or leasehold improvements
* Create greater operational flexibility
* Secure a below market rental structure
* Secure flexible lease terms
While in the current economy, sale / lease back transactions can be costly, they may also afford benefits and opportunities for some companies. Consideration of such transactions and their corresponding ramifications, should be carefully reviewed, given the current economic and real estate environments.
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About Real Estate Strategies Corporation
Real Estate Strategies Corporation is a respected corporate advisory and transaction services firm that provides thought-leadership, decision-making, planning, project management, and transaction execution services to financial and senior executives at management team-led public, private, and portfolio companies, and not-for-profit organizations. Under the leadership of its award-winning CEO, Andrew B. Zezas, RealStrat’s clients engage the firm when acquiring, disposing, renegotiating, or enhancing occupied leased or owned real estate in New Jersey, Pennsylvania, New York, Connecticut, and throughout North America. By creating and executing Business DRIVEN Real Estate Solutions and identifying hidden Opportunities, RealStrat drives greater operational and financial performance in support of its clients’ stakeholder objectives, M&A requirements, and exit strategies.
In the current economic environment, RealStrat’s efforts are focused on uncovering, capturing, and re-purposing hidden liquidity and minimizing risk in its clients’ leased and owned real estate. The firm provides counsel as to competitive advantage strategies in preparation for the eventual economic recovery. Visit www.RealStrat.com.
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