Sale leasebacks can be very beneficial to business owners who are struggling to maintain enough capital to keep up with operations. A sale leaseback allows these businesses to gain access to this capital by drawing cash from their assets but still maintaining their business. This occurs through a transaction where an investor purchases the businesses owned property, and leases it back to the business owner.
This transaction can be very beneficial to companies who are in need of cash flow that is currently tied up in real estate. Not only can it allow companies to carry out their day-to-day operations if they are struggling, but it can also allow for companies to have access to enough capital in order to make moves towards expansion.
Benefits for Sellers
There are many benefits of a sale leaseback for sellers. The transaction allows for business owners to convert their equities into cash in order to avoid debt restrictions by running day to day operations when sales aren’t generating enough revenue. Sale leasebacks also lead to businesses receiving more capital than they would with regular financing, along with improving their credit and restructuring their balance sheet.
Benefits for Investors
Sale leasebacks offer benefits not only for sellers, but also for investors. Payments from tenants provide investors with a steady, long-term form of income, with assurance that their tenant has prior operating success at the location. If financing is in place, the investor has the opportunity for mortgage interest write-off, along with an investment that doesn’t require much management.
Growing Demand During COVID-19
With many businesses in turmoil resulting from the pandemic, sale leasebacks are in high demand. Businesses are in need of generating liquidity in order to survive through these times and the uncertainties that lie ahead. Extra capital would allow for these businesses to pay back debt accrued during the economic shutdown, while still making efforts towards future growth.
Notable Transactions
Earlier this year, a sale-leaseback in the Pinellas area was made on a 94,000 square-foot industry facility, for $6M. The seller and tenant specializes in manufacturing. Check out this article of some tips from Luke Timmis, sale leaseback specialist.
