In business, there are many “golden” moments that can arise.
For example, the opportunity to acquire a competitor’s business may emerge, and you don’t have the extra capital to do so. If you are a business owner/occupant (someone who owns the commercial real estate and the business) you may be a good candidate for a sale-leaseback.
A sale-leaseback can be the perfect vehicle to free income that can be reinvested into your business.
A sale-leaseback is when the owner/occupant of commercial real estate (CRE) sells the commercial asset to a CRE investor. The terms of the sale-leaseback are heavily influenced by the owner/occupant by design. In other words, the business owner will outline the terms such as the length of the lease and lease type. Typically, most investors prefer the Triple Net Lease (NNN), which is a passthrough from the owner to the tenant. The tenant in a NNN lease will pay for the maintenance, taxes, and insurance for the commercial property.
Sale-leasebacks are not just for local owners/operators; regional and national companies do this also. One of the most notable transactions is Red Lobster’s sale-leaseback of its CRE assets back in 2014. They sold their properties to Golden Gate for well over 1 billion dollars. This bold move freed up the capital that Red Lobster needed to invest back into their business. You can do the same!
What are the benefits of a Sale-Leaseback?
There are many benefits, but some of them include tax advantages, equity liquidation, and favorable lease terms. Furthermore, the business owner will retain use and control of the CRE asset. For more detailed information on the tax advantages, consult your trusted CRE CPA.
In small and midsize markets, sale-leasebacks are a good go-to for business owner/occupants with well-qualified businesses. What do I mean by “well-qualified”? CRE investors want to invest in assets not liabilities. If you can show that you have had strong numbers (net operating income and financial records) and good business credit, your business would be considered “well-qualified”. If your business is struggling, an investor may not want to risk their capital on you.
To give you an idea, the following are just a few examples of businesses that may benefit from a sale-leaseback:
- law firms
- insurance companies
- auto shops
Businesses that have a strong local, regional, or national presence, and a sound reputation, are all good candidates for sale-leasebacks.
To learn more about CRE sale-leasebacks or to see if this can work for you, contact me today.