The Financing Can Be Utilized For One Asset Or An Entire Portfolio

Category: Finance.

The strategic conversion of corporately owned real estate into working capital has proven extremely beneficial to corporations, particularly as their executives are scrambling to find funds to help grow their companies. Companies have found that access to their traditional capital resources has become more restricted, has impacted their, which in turn ability to access competitively priced debt.

The benefits of sale- leaseback financing has become all the more obvious with the economic slowdown and the tightening of the credit markets. Under these circumstances, the advantages of sale- leaseback financing has emerged as a unique opportunity to raise capital without clouding one s balance sheet with long- term debt. The financing can be utilized for one asset or an entire portfolio. Sale- leaseback financing can be defined as a corporate entity selling their owner occupied asset to an investor, usually at a fair market value- Price is usually based on an appraised value. The investor provides the seller with a triple- net operating lease for a period of 10 to 25 years plus options so that the seller can continue to occupy the property. Investment grade corporations command a lower rate, while non- investment grade tenant command a higher rate. Initially, the seller/ tenant usually pays the investor a negotiated annual rent equal to 5% to 12% of the contracted sale price.

Because the rate is credit- driven, the real estate is considered to be additional collateral. However, it was mostly, in the beginning chain businesses and national franchises that took advantage of the benefits of this financing vehicle. Small and large businesses alike can benefit from sale- leaseback financing. Many corporations across the country have employed sale- leaseback financing as a viable source to help finance mergers and acquisitions or leveraged buyouts. This effective financing vehicle also allows companies to fuel their growth while focusing on their core business operations. Many companies often use sale- leaseback financing as a way to eliminate long term debt obligations from their balance sheets and enhance liquidity. The duration of the lease is negotiable, for a period of typically ten to twenty- five years.

This form of lease allows the tenant to remain in complete control of the property under the lease provisions, while being responsible for property taxes, insurance and maintenance and expenses derived from occupying the property. A triple net lease is typically used. Sale- leaseback financing can be used for both existing and build- to- suit real estate. Numerous privately and publicly held companies have employ this financing method successfully everyday. Regardless of the type of property you own, i. e. retail, industrial, office, educational buildings, industrial facilities, health care, service centers, distribution warehouses or fast- food establishments, you can fully benefit from clear advantages of sale- leaseback financing. Sale- leaseback financing is an important capital resource which is often overlooked. Given the instability of the securitized debt market, this financing vehicle makes a perfect alternative to traditional and non- traditional mortgages.

The attributes that this financing system provides, is all the more welcomed as spreads on traditional mortgage debt are widening.

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