What are the Pros and Cons of a Sale Leaseback?

The RENT blog gives you the resources and tools you need to make the best decisions regarding your real estate needs. We cover a broad range of subjects regarding office space, tenant needs and what to look for when investing in property.

Sale leasebacks occur when a business sells a building it both owns and occupies while entering into a long-term lease agreement with the purchaser of the building. Sale leasebacks are a strong alternative to conventional financing as they allow users/owners of property to free up excess capital that has been invested in real estate and put it toward other uses.

What Companies or Properties are Good Candidates for Sale Leasebacks?

Properties with single tenants
Most property types, such as office, retail, medical, and industrial
Companies with a long and provable operating history as well as a healthy balance sheet
Companies which are willing to enter into leases of at least ten years at the current market rate
Companies which are willing to enter a triple net lease and agree that the tenant will be responsible for any and all operating expenses

What are the Pros of a Sale Leaseback?

Will convert non-liquid real estate assets to usable capital without stripping the user of control over or use of the property
Will avoid costs usually associated with conventional debt financing for real estate transactions
Will allow the user/seller to depreciate the land as the lease payments will cover the use of land as well as the building
Lease payments are tax-deductible
Will remove debt associated with real estate from the balance sheet and improve the company’s debt to equity ratio

What are the Cons of a Sale Leaseback?

Any future property value appreciation is forfeited by the user
The user can no longer sell the real estate as part of any subsequent sale of the business as a whole
In cases where the property has been owned for a long period, the tax impact incurred may be substantial.

At Golden Group Real Estate, we specialize in tenant representation real estate services for office space users in the Chicago area, helping local business owners find office space and negotiate lease and purchase agreements. We never represent landlords, so we are prepared to negotiate aggressively on behalf of our tenant clients.

For more on Golden Group Real Estate, read about our real estate services. Let us know if we can help you find office space for rent or buildings for sale. Call us at (630) 805-2463, email us at troy@goldengroupcre.com.