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.

1 comment:

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