Sale Leaseback

Sale-Leaseback

Simple answer to a tight credit market...

Best Corporate Real Estate broker, Steve Herb, has launched a full-scale program to match high-quality businesses with a need for cash, with investors interested in sound commercial real estate leases.

In short, the present owner sells their commercial property to an investor who is looking for investment-grade commercial properties. The owner remains on as a tenant, and continues business operations without missing a beat. It can be a very smooth strategy.

Keep in mind, leasing is simply an alternative form of financing. Properly done, there are no downsides to this strategy. Many large corporations do not own their real estate in the course of their business operations because they do not feel it fits their needs. They realize they are not in the business of real estate. Chase Bank comes to mind.

If your business is in financial distress, be sure to review Distressed Business Solutions for possible solutions.

Steve is working with sellers in the following business sectors:

Medical practices

Medical laboratories

Assisted care facilities

Ethanol production

Manufacturing

Nursing homes

Auto Dealers

Veterinarian practices and hospitals

plus numerous other "Best in Class" operating businesses.

If you have a particular need, be sure to contact Steve Herb.

Advantages for the Seller:

The advantages of a Sale-Leaseback are numerous:

· · Frees up cash now locked up in the property as “equity”

· · Can be used as a cornerstone for retirement planning and estate planning

· · Offers tax and legal advantages (be sure to consult with your legal and tax advisors):

o Allows owner to time the actual receipts of cash from the sale of the property

o Leasing expenses are generally fully deductable

o Removes the property from potential liability lawsuits

· · Allows owner to control the timing and method of how they exit their present practice

· · Smoothes out monthly operating expenses by reducing future unforeseen expenses, such as major maintenance expenses (roof & HVAC repairs for example)

· · Makes the property more marketable:

o makes it appealing to investors, instead of only potential users

o may allow the buyer to qualify for better financing terms because of the lease income

· · No interruption of business operations

· · The owner/seller remains in control throughout the sale and lease negotiation, assuring satisfactory terms for the seller.

In addition, it may allow selling your property at a premium over standard market prices, because the sale price may be based on the lease terms offered, plus other factors involved.

In an economy like we are experiencing, a Sale-Leaseback could actually be the most efficient means of securing cash for other needs. In addition, please note that a large amount of equity in the property is not necessary to secure a Sale-Leaseback. The amount of seller’s equity does not generally impact a Buyer’s terms.

In short, leasing is simply an alternative means of financing, and very often with fewer headaches.

Advantages for the Buyer/Investor:

	· Opens up more properties for consideration
	·· Can allow “maintenance-free”, and long-distance ownership of investment properties
	·· May allow the buyer to qualify for better financing terms because of the lease income
	·· Better assurance of acquiring quality tenants
	·· Investment real estate offers tax advantages (be sure to consult with your legal and/or tax advisors)
	·· Investment real estate can be used as a cornerstone for retirement planning and estate planning
	·· Gives instant tenants and income from newly-acquired properties
	·· Lease terms are negotiated during the sale and lease negotiation, assuring satisfactory terms for the buyer.

And, should the buyer decide to dispose of the property in the future, it could be more marketable for all these same reasons.

Sale-leaseback terms for Owner/Seller’s consideration:

Here are the important items for the present owner(s) to consider before we offer the property for a sale-leaseback. Please keep in mind the ultimate goal, to maximize the sale value for the present owner/seller, while being able to attract the largest amount of interest from potential investors.

As with most business-related real estate deals, it reduces down to “price or terms”. Be specific about your needs, and then decide which items are not as important. We will then use the less important items as “bargaining chips” while negotiating the ultimate sale and your new lease.

There are numerous terms to any lease, but here are the general items to consider:

	Asking sale price (the “list price”)
	Terms of new lease (the "leaseback" part of this transaction):

o Monthly lease amount (should be based, at least loosely, on market rates)

o Length of initial lease (5 to 10 years are standard, but what will suit your needs?)

o Renewal options after the initial lease term (1 renewal? 2 renewals?) and how long each will be (3 years, 5 years?)

o Who will pay taxes, insurance and maintenance (the three expenses commonly referred to in a “Triple Net Lease”)

o CAM (“common area maintenance”) fees – who will pay?

o Condo association fees – who will pay?

o Bump clause after the __ year in the initial term, or with the exercise of each renewal option? This would allow a rent increase of a predetermined percentage, or will be based on an agreed upon index, For example “will be based on the CPI as published in the Wall Street Journal effective January, XXXX”.

o Of course you will want to reserve the right to sublet part or all of the premises.

Again, keep in mind that all of these items can be flexible, and the final sale-leaseback terms will surely not be what we originally offer. This is why the owner needs to do a true and realistic needs-assessment before we get into serious negotiations.

If you would like to explore the “fit” of utilizing a Sale-Leaseback for your business practice, or your investment portfolio, feel free to contact Steve Herb.