Improving Liquidity Through Real Estate Sale and Leaseback Transactions

Many companies own the real estate from which they operate their business. However, if investing in real estate is not the company's core business, might it not be better to free up that capital? Capital invested in the company's primary business may generate a higher return on investment.

In challenging economic times, many companies need greater liquidity. On the other hand, we see that typical debt providers like banks are reluctant to provide additional financing, especially in a bear market. Current high interest rates also may prevent companies from obtaining debt financing. In such cases, a sale and leaseback transaction may be beneficial for both investors and companies.

In sale and leaseback transactions, companies sell their real estate to an investor and enter into a long-term lease with the new owner. Often, parties agree on a ‘triple net lease,' meaning that the lessee remains responsible for all maintenance, repair, and insurance costs. The company as lessee enjoys many of the same benefits (and burdens) of owning real estate, with the added ability to invest liquid capital into the growth and innovation of its business.

For an investor, a sale and leaseback transaction can provide a reliable and steady flow of rental income, which is adjusted for inflation. Additionally, an investor can review the historical performance of the company and assess its future potential, thus maximizing the investor's own profits.

In the current market, we still see an appetite for sale and leaseback transactions, especially with investment-grade companies and long-term lease agreements (10-15 years). The Greenberg Traurig RE-STRUC team has deep experience assisting clients and investors with sale and leaseback transactions.