When I call property owners asking about interest in selling their properties, one of the most common responses I hear is, “Oh no, I don’t want to move my business.” I love being able to tell property owners about a creative solution that would allow them to keep their business in its current location while capitalizing on the value of their property! This solution is called a sale / leaseback agreement.
In a sale/leaseback transaction, a property owner agrees to sell their building to an investor, and then turns around and leases their former building right back from the new owner. This kind of arrangement has great appeal for both parties.
Free up capital without relocating
One aspect of a sale/leaseback that is appealing for the seller is that they do not need to uproot their business. For many business owners this means they can free up capital for other projects or expansion, but they can do so without the headache or costs associated with relocating. Additionally, by approaching a sale in this manner, their guaranteed future tenancy allows the seller to achieve a premium price for their property. For some older owners, this type of transaction represents a wonderful way to help them plan for retirement.
Stable investment
Meanwhile, buyers are drawn to sale/leasebacks because of the relative certainty and stability they provide as an investment. The economics of the deal are presented upfront: CAP rate, terms/length of a lease, and a tenant already in place. Investors also know that once the sale/leaseback comes to an end, they will most likely be left with a property that is very marketable. This stability makes sale/leasebacks especially attractive for 1031 Exchange buyers looking for investment vehicles to provide tax shelters.
Our experience: STRATEGIC connections
Linville Team Partners has facilitated a number of sale/leaseback transactions over the years. Recently, we executed one for Strategic Connections, a company specializing in commercial audio visual needs in downtown Winston-Salem.
When Strategic Connections first purchased the building, property values were depressed, which meant they were able to purchase a property in a highly desirable area for a relatively low price. Shortly after they purchased their property, the rapid growth and revitalization of downtown Winston-Salem began. Strategic Connections’ office building quickly became a valuable piece of real estate, and the owner, wanting to take advantage of the situation, pursued a sale/leaseback to capture the premium for his property, but not be forced to relocate.
The investor who bought the property had money to place, and saw a well-located office building in downtown Winston-Salem. The investor knew Strategic Connections would sign a long-term lease and was a credit worthy tenant, making it a stable investment for the length of the lease. The investor also knew that the location of the property would continue to be desirable for businesses as downtown continues to grow and expand, therefore making the real estate of the building valuable in and of itself. These two components meant that the transaction was a sound investment.
Linville Team Partners represented both the buyer and the seller in this transaction. Both parties walked away pleased with the sale/leaseback, having achieved their individual goals.