Wednesday, September 24, 2008

Sale-Leaseback as Alternative Financing?

With the crunch on capital placing constraints on business expansion, some businesses may turn to an old tool, sale-leasebacks, to help their businesses grow.

In a sale-leaseback, businesses sell their real estate assets to investors and lease them back under long term arrangements, typically between 10-20 years, with extension options. The leases are typcially under some form of net lease arrangement and can generate cap rates in excess of 300 basis points over the 10 year Treasury yields for investors.

Sellers are able to move the real estate asset off of their balance sheets, receive predictable long term lease rates and usually obain obtain tax advantages, writing off the entire lease amount, as opposed to only the interest portion of their mortgage payments under the ownership scenario. The mst obvious advantage, however, is the cash the business will receive from the sale that can be plowed back into the business to supply necessary funds for growth or to pay down debt.

Stay tuned, because we will take a closer look at this strategy in the coming days.

Tuesday, September 16, 2008

Closed Starbucks Properties

This is an interesting site geared to the owners of shuttered Starbucks stores. It is being built out as we speak, but should add some value to those owners and developers lost in the woods right now with the their stores closing.

Tuesday, September 2, 2008

Property Taxes - Florida versus California

I was reading the Wall Street Journal (Personal Finance, D8) this morning and came across some residential properties for sale in California. The sale price, description of the property and notable items were all listed in the recap. Also listed were the property taxes, the values of which grabbed my attention.

They were as follows:
Kenwood, CA. Sale Price - $2.45m, Taxes - $28,500
Healdsburg, CA Sale Price - $3.495 million, Taxes - $23,797
Napa, CA Sale Price - $8.5 million, Taxes - $85,000

The reason I found them to be so interesting was because, although I have always been told that California possesses some of the heaviest property taxes in the country, they seemed a bargain to me, living in Florida. For kicks and giggles, I compared them to similar valued properties in the county that I live, Hillsborough County, Florida. I ran the tax estimates using our county's tax estimating calculator (quite a nice feature, I might add) and the calculated values were as follows, respectively (MOL) : $50,000, $72,000 and $170,000. WOW! Roughly twice what our California brothers and sisters pay.

Now, in fairness, these California taxes will in all likelihood increase at the time of sale, so the comparison is not 100% fair, but all things considered it was still a fairly shocking exercise for me. While the commercial market is still holding up fairly well in Florida, the residential market is really in the dumps. Call me crazy, but could this be one of the reasons Florida's residential market is doing so poorly? The State has always marketed itself as an inexpensive alternative to its more glamorous competitor, California and at first glance is the State really "inexpensive?" Florida tax coiffures and property values have swelled in the last 10 years, along with local and state expenditures to match. In fact, growth in local government expenditures over the past 10 years has FAR outpaced population growth. Let's watch the people of the State of Florida now futilely try to take those revenues away from their government. The absurdity of relying so heavily on variable property taxes to support a relatively fixed budget could not be more apparent. In the end, the State's officials, as always, will do nothing until there is some sort of accompanying crisis. What is sad is the the State may already be in a crisis, an economic one as businesses and migrating retirees appear to be spurning the State in large numbers (across the State, population and economic growth numbers have been dramatically reduced downward for the near and medium terms).

I know this diatribe has nothing to do with Triple Net Investments, but I found it to be an interesting fact (indictment?) of Florida's stuck-in-the-mud economy.