What is a Sale Leaseback? /Financing your Acquisition with the Real Estate

September 26, 2023

by a professional in Los Angeles, CA, USA

In a sale-leaseback, a company sells its real estate to a third-party investor and simultaneously enters into a long-term lease. In doing so, the company extracts 100% of the property’s value while maintaining operational control.

Value Creation: Maximum value of the real estate is captured by structuring a long-term NNN lease, backed by the tenant’s credit. Investors are willing to pay a premium for a passive-investment in real estate, proceeds are often 1.5-2x the appraisal value.

Strategic Considerations
Fund Internal Growth:
Allocate proceeds of sale into core business operations where returns are higher.

Fund External Growth: Sale leasebacks can be executed for existing company-owned real estate or concurrent to an M&A transaction.

Balance Sheet Optimization: Improve credit of business by reduction of debt

Tax Benefits: Rental Payments are 100% Tax Deductible, as opposed to interest limitations for traditional debt as defined by tax laws.

If you have a deal under LOI and are looking for some guidance on this strategy please message me.

Reply by a searcher
from Yale University in Chicago, IL, USA

Will reach out, Joel! One thing that we are trying to understand better is what financing is required to facilitate the sale leaseback at the deal close. In a self-funded deal, would we have to acquire the real estate with some form of SBA debt, get the leaseback cash flow, then instantly pay off the debt? How have you seen these financed in the past?

Reply by a professional
in Los Angeles, CA, USA

No you would not, the sale leaseback can be done simultaneously with the close of the M&A transaction. so no loan or equity would be required.

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