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Inward Investment Guides

Sale-Leasebacks: A Smart Real Estate Strategy in Tough Times

By selling and leasing back real estate, companies can boost liquidity, reduce debt, and create a better environment for doing business.

George Livingston, Founder and Chairman, NAI Realvest and Christie Alexander, Principal, NAI Realvest (November 2010)
(page 2 of 2)
For Buyers
Buyers of corporate real estate assets have clear benefits:

• Predictable, long-term cash flow;
• Returns typically higher than bonds;
• Possible appreciation of value at roughly the rate of the lease increase;
• Low management requirements;
• Rent increases and appreciation that hedge against inflation;
• Some tax shelters from depreciation and other deductible expenses; and
• Positive leverage - especially in this period of high capitalization rates and low cost of debt - that can increase return.

Companies can leverage real estate as part of business strategy. They may develop new facilities for sale and leaseback themselves. Or they can use a joint venture partner to develop, sell, lease back, and share the profits, with the debt on the developer's balance sheet.

Ask Area Development

Wondering if sale-leaseback is a smart strategy for your business? Submit your questions below to Ask Area Development and the article author will respond.
Owning real estate seldom offers a company the same returns as its core business. By selling real estate, a company can reduce debt, re-purchase stock, improve financial ratios and the balance sheet, and focus on its core business.

Companies should consider sale-leaseback of existing or planned facilities as a smart financial strategy in economically difficult times. Divesting real estate assets to create returns can ultimately help companies focus on what they do best.
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How has the recession affected companies' sale-leaseback practices?
I have observed fewer sales and lease back transactions over the last few years. More
- George Livingston, Founder and Chairman, NAI Realvest
You mention several drawbacks to sale-leasebacks. How can companies mitigate potentially negative outcomes of sale-leasebacks?
Have an option to buy the property at a set time, and perhaps at a set or to-be-determined price. More
- George Livingston, Founder and Chairman, NAI Realvest

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