GET 100% FAIR MARKET VALUE FOR YOUR CORPORATE OWNED REAL ESTATE!

Unlock Equity & Raise Cash with Crown Star Mergers & Acquisitions Sale-Leaseback Financing Program.. 

 A very common, yet not well understood commercial real estate transaction is the sale-leaseback, which is a transaction that involves an owner-user selling their real estate asset to private and institutional purchasers, and then leasing back the property as a tenant. 

If you need liquidity and don't want to sell your business; a real estate sale leaseback may be your best option. You can get up to 100% of the market value of your corporate owned real estate with a Sale Leaseback transaction. 

Advantages of a Sale-Leaseback in Commercial Real Estate

• Turns illiquid equity into deployable capital
• In most cases, business rent is fully deductible for tax purposes
• There are no interest costs associated with borrowing against the property’s equity
• A lease offers future cash flow visibility
• There may be ways to minimize capital gains liabilities through a 1031 Exchange or Opportunity Zone investments
• Provides opportunities for a company to reduce their premises size if applicable.  

In a sale-leaseback, sellers can convert illiquid assets into cash while still retaining use of the properties. Essentially, the user sells the property to an unrelated third party and then enters into a lease for the property for a mutually agreeable term or time period.

Many companies use net leases. One example is Pier 1 Imports, where Rick Blackwelder, vice president of real estate and development, uses net leases to finance new stores, seeking favorable lease terms, minimum red tape, flexibility in the lease, and a financially strong reliable lessor.

Benefits of a NNN Net Lease.

Many business owners also act as their own landlords. While owning your own real estate can provide a sense of comfort, business owners are frequently at an advantage monetizing the value of their real estate and redeploying that capital into higher return opportunities such as reinvesting in their business or paying down company debt. In addition, as a company grows and becomes more valuable, the monetization of real estate assets may make sense to “take some chips off the table” or separate the full value of the real estate from the value of the company.

Some business owners who use this strategy need liquidity for personal real estate investing projects, some business owners are actively planning their retirement and need extra liquidity to invest in income producing assets like stocks, bonds & real estate. 

While others take the capital, they receive from a real estate sale lease back and acquire large apartment complexes to diversify their income.

Business owners in this situation should ask themselves whether owning their real estate is clearly strategic or if unlocking the value of the real estate could provide enhanced financial opportunities. If unlocking the value of the real estate is a better benefit, then one tool to convert the real estate into a revenue source while still retaining operational control is using a sale-leaseback structure.

Sale-leasebacks have occurred across nearly every industry sector, increasing in popularity over the last three decades as a crucial solution for many middle market companies.

In a sale-leaseback, a company sells the real estate it owns to a buyer while simultaneously signing a long-term lease to continue to use and occupy the property. Such buyers are often professionally managed real estate firms who act as stable and supportive landlords providing additional capital for upgrades or improvements. Such leases are frequently structured on a “triple net” basis so the business owner retains operational control over the property.

Knowing the opportunities in the marketplace, one may ask why a sale-leaseback might be a beneficial structure. For many middle-market firms, there are five major benefits of a sale-leaseback transaction:

1. Unlocking the full value of your real estate:
   A sale-leaseback typically affords the seller nearly 100% of the appraised value of the real estate. Compared with a mortgage that typically nets 65-75% of the appraised value, the sale- leaseback allows for a much better net cash return to the business owner.
2. Redeployment of capital from non-core to core business functions:
   A sale-leaseback allows you to convert a non-core asset (real estate) into capital to invest in the core and growth areas of your business. Considering business expansion? Growing a specific line of business? Investing in key revenue streams? These opportunities generally offer higher returns than ongoing ownership of real estate.
3. Attractive rates compared to other alternative financing options:
   Growth financing can be very expensive for middle-market companies, with some mezzanine debt requiring 10-15% interest. In a sale-leaseback transaction, a rental payment at market rates may be less than a loan payment amount. What’s best, unlike loan payments, the rental payment is typically a fully deductible expense.
4. Fair and customizable lease terms:
   In a sale-leaseback, the business owner and new landlord work together to achieve fair and reasonable lease terms. Both parties typically want the rental rates to be at or below market and the length of the lease, renewal options and other terms can be customized to meet operating needs. New landlords may also provide additional capital for improvements or additions as part of the new lease.
5. Cleaning up the balance sheet:
   Growing a middle-market business requires capital and many business owners worry about over-leveraging their balance sheets. In a sale-leaseback, owners can gain liquidity from real estate assets and use these proceeds to clean up liabilities and reduce debt.

As an example, consider the case of ABC Company, a mid-sized packaging and printing firm that owned a thirty-year-old, 100,000 sq. ft. facility that housed its headquarters and production activities. ABC was interested in starting a new line of business that would expand its product set but required $2,500,000 for building improvements and equipment acquisition. ABC’s owners considered taking on a mortgage, but at a valuation (based on a recent “as vacant” appraisal) of $25 per sq. ft., the proceeds of a 60% loan-to-value would only be $1,500,000. The owners also had concerns about increasing their debt on the balance sheet.

In search of alternative financing opportunities, the owners contacted a commercial real estate firm who specialized in sale-leaseback transactions. That firm was able to negotiate a 12-year lease at $3.00 per square foot (slightly below market) and an acquisition price based on a 7.5% cap rate. The proceeds of the sale-leaseback transaction were $4,000,000 ($300,000 divided by 7.5%) – enough to fund the needed improvements and equipment. In addition, the owners negotiated two five-year renewal options, feeling comfortable that the lease provided a stable and predictable arrangement for their operations for many years to come. The owners used the excess proceeds to pay down existing debt and reduce interest costs.

So, when is the right time for a sale-leaseback? The timing for each individual company will differ, but these four inflection points help determine one’s appetite for a sale-leaseback:

1. Accessing new capital for growth or personal investments
2. Improving your company’s financial health and flexibility
3. Packaging your business for a sale (the value of your business may be increased by selling the real estate and the core business separately)
4. Recouping funds to pay down debt after a key acquisition.

The sale-leaseback transaction can be a very effective means for business owners to monetize real estate assets. Not only do sale-leasebacks provide sound solutions for mid-sized businesses, they also provide similar opportunities for:

• Private equity firms wanting to dispose of real estate after final acquisition.
• Larger corporations interested in buying-back stock or creating value for shareholders.
• Entities considering using non-core assets to reinvest in their business.

• 100 Percent Value: Receive 100 percent of the property value rather than a loan, which only funds 65%-75% of the value.
• Improved Balance Sheet: By converting a long-term non-liquid asset into working capital, you can utilize the cash to focus on your business’ core operations.
• Avoid Depreciation and Interest: Reduce the negative impact of depreciation on your property and stop paying high interest rates to improve your income statement.
• Potential Tax Benefits: Potentially write off your entire rent payment instead of only the interest portion of your mortgage payment by leasing instead of owning.
• Access Your Capital: Deploy the proceed from a sale-leaseback transaction to core operations that yield higher returns than the appreciation of real estate.
• Reduce Debt: Pay down existing debt and relieve yourself of personal loan guarantees as well as avoid future refinancing risks.
• Maintain Control: Maintain full operating control over the space in a lease that is structured to your individual needs.

If a sale-leaseback is something you’d like to consider for your business, please reach out to our team for more information on this option.