Sale/Leaseback Benefits

A sale/leaseback arrangement allows property owners to sell their real estate while simultaneously entering into a long-term lease, providing numerous strategic advantages for businesses and investors.

Liquidity & Capital Benefits

1.  Increase Liquidity – Convert illiquid equity to cash, while retaining control of the underlying property by virtue of the leaseback.

2.  Raise Additional Investment Capital –  Maximize financial returns by redeploying net cash proceeds to:

a)  Resolve working capital shortfalls
b)  Facilitate debt restructurings
c)  Invest elsewhere at higher rates of return

Financial Advantages

3.  Alternative to Mezzanine Financing – By selling property at its fair market value, a property owner can achieve a higher advance rate than mezzanine financing with:

a)  Substantially lower capital costs
b)  No loan origination fees
c)   Lower loan constants
d)  No short term balloon payments
e)  No restrictive debt covenants

4.  Hedge Downside Risk – Convert present equity to cash, eliminating exposure to potential future decreases in property value.

Balance Sheet & Tax Optimization

5.  Off-Balance Sheet Liability – (a) No longer need to carry an illiquid asset on their balance sheet at a below market value and/or (b) pay down debt.

6.  Retain Depreciation – Depreciate leasehold interest if the parties sign a lease with a term greater than 30 years (including lease renewal options).

7.  “Depreciate” Land – Unlike conventional real estate ownership where the land component of a property isn’t depreciable, the seller is able to deduct the lease payment attributable to land value.

8.  Strategically Recognize Taxable Gains and Losses – Time the recognition of gains (e.g. to offset net operating loss carryovers) or losses (to reduce tax liability on other taxable income), while retaining control of the underlying property.