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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)

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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.

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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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About the Author

George Livingston, Founder and Chairman, NAI Realvest
George Livingston, founder and chairman of NAI Realvest, is an entrepreneurial executive and long-time real estate developer and commercial broker in Central Florida. Livingston advises and represents foreign investors, provides real estate services for fast growing companies, and represents lenders in the disposition of special assets. He also represents buyers acquiring investment properties, as well as providing tenant representation and site selection services. His clients include corporations, real estate owners, investors, and developers.

More articles by Christie Alexander

In Focus: Turning Leased Industrial Facilities into Profits

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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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