Bottom line up front: Sale leaseback transaction can provide a number of benefits to middle-market companies.
Growth Strategy
Our clients generally come to us with a great business that needs to be scaled or grown to multiple locations. Our investors love to work with these business owners. We can work with your existing real estate broker to scout new locations or act as your behalf to enter into negotiations to purchase the new property. If you cannot find the prefect property, our investors provide financing to remodel existing structure to meet your needs or build on raw land to your specifications. Unlike traditional financing our investors provide cash proceeds for up to 100% of the appraised value of the property versus the 65% to 75% of appraised value under a typical mortgage.
Tax Benefits
Unlike owners of real estate, Lessees are able to write off their total lease payment as an expense for tax purposes. As property owners, the interest expense and depreciation were the only tax deductions available. As such, a sale-leaseback may have a greater tax advantage.
Autonomy
Most sale-leaseback agreements are structured as triple-net leases, so the tenant will be responsible for the taxes, insurance, and common area maintenance. A long-term, ‘hands-off’ lease from the investor provides the tenant similar control over the property as was the case when the tenant owned the property. The tenant can work with the special purpose investor and include options that will provide for future expansion and sublease of the property.
Is a sale-leaseback right for my business?
If the business currently owns real estate, a sale-leaseback can be used to free up cash to grow a business through acquisition or to acquire growth capital, additional facilities, technology, and equipment. If a company does not own real estate, our investors still are willing to work with existing business owners to acquire new locations. Many businesses do not have access to as much credit as they need to achieve their growth objectives; many are too close to their borrowing limit to consider expansion or make an acquisition of a competitor.
Sale leasebacks can be used as an off-balance-sheet financing structure that gives the seller the opportunity to turn a non-earning asset into growth capital. The company can then save the available bank financing for acquisitions and growth opportunities in the future. The sale-leaseback proceeds could also be used for other corporate purchases like the buyout of a shareholder. The absence of covenants in sale-leaseback arrangements provides business owners with significant discretion in determining the best use of their company’s cash.
Quick Closings
We work to meet tight time frames. If a potential seller is able to provide historical financial statements, projections, and a description of the planned use of proceeds, our investors can make rapid investment decisions – often within 45 days.