Growing Your Business Through Sale-Leasebacks
One tool that many business owners are finding useful during this economic crisis is the sale-leaseback. This is a real estate transaction allowing a company to sell a property and lease the property back from the new owner. Business owners sell their properties but can continue normal business operations.
The most common question from prospective buyers when pursuing a sale-leaseback is “Why does the company want to sell their owner-occupied real estate?” There are a number of reasons why and here are the most common:
Free up capital
Pay down existing debt
Put money aside for a rainy-day
Invest in technology
Invest in their people
Buy out a competitor
Sale leasebacks are particularly useful as an alternative to taking out a loan and incurring additional debt. A loan shows up on a company’s balance sheet as debt, whereas a leaseback transaction results in liability going down and current assets increasing in the form of cash and a lease agreement.
Sale-leaseback arrangements can benefit both parties: the seller/lessee and the
buyer/lessor. The seller/lessee frees up capital to grow their business, removes the risk of owning the asset and improves their balance sheet. On the other hand, the buyer/lessor purchases an asset with a guaranteed lease that is usually triple net (NNN), meaning it carries minimal landlord responsibilities. The investor also reaps the rewards when tax time rolls around; the property can be depreciated over time through cost segregation, resulting in major tax benefits.
The commercial real estate market continues to gain momentum in the face of COVID-19, resulting in a favorable time to sell owner-occupied real estate. Businesses and corporations that need to access the money tied up in their real estate should consider a sale-leaseback arrangement to provide a source of liquidity, enabling business growth and development beyond the pandemic.
Justin Langlois, CCIM is a Commercial Real Estate Advisor with Stirling Investment Properties servicing Baton Rouge, Louisiana and surrounding markets. Please reach out to Justin to discuss your real estate investment strategies.