Sale and Leaseback, how does it work?
Category Editorial
Sale and leaseback transactions have long been popular because they present benefits to both the business and the investor. In this arrangement the company sells their asset, and in this case, it is their commercial property to a buyer or investor. They in-turn sign a lease agreement to rent out the property on a specific set of terms. Parties will agree to the rental rate as well as the lease term and any rental escalations during the lease term.
The primary and immediate benefit to the company is improved liquidity with funds available to either reduce debt or to invest in growth strategies. This process also reduces any down-time and disruptions to a business that would normally be encountered when relocating your business to a new premises.
Sale and Leaseback Transaction
In a typical sale-leaseback transaction, a property owner sells its owner-occupied building to an investor and at the same time secures a long-term lease commitment from the new owner. This allows the owner company to access liquid capital that would have otherwise been tied up in its real estate and redeploy this immediate cash flow to ensure business survival, In many cases, a far greater return than the capital invested in a property can be achieved when employed in an operating business.
Businesses who go the sale and leaseback route also enjoy a substantial reduction in interest-bearing debt, an improved balance sheet, improved profitability and reduced risk due to fixed future occupational costs. Sale and leasebacks offer a good alternative to traditional bank financing, and often it is a much faster process than banking approvals allow. Bridging finance can also be arranged to further speed up access to capital.
While sellers are looking to free up capital to reinvest in their business, deals such as these have appeal for investors who are not only drawn to the inevitable appreciating value of the property, but also the stable and predictable returns offered through long-term leased real estate with annual rent increases which can provide a hedge against inflation.
Transactions of this nature are usually quite complex and having the right property partner with experience in this field will help ensure a smooth and hassle-free process. At Spire, we have over 20 years of commercial property experience and have a team of dedicated property professional that can guide you through the process from beginning to end. Our knowledge of the property market, trends, and our partnership with many industry investors allow us to provide an end-to-end solution for clients looking to engage with a sale and leaseback option for their business.
Spire Property Solutions
We represent tenants, buyers, landlords and sellers and deliver a full spectrum of Commercial Real Estate Services in South Africa. We offer end to end Corporate Real Estate Solutions throughout the life cycles of the facility and or asset. We are proud to provide tailor-made multi-service solutions, backed by world-class expertise and exceptional services. We have a team of Commercial Property Specialists who have the resources and experience to analyze and process the industry's trends and provide expert advice and solutions for our clients.
If you want to know more on how a Sale and Leaseback will benefit your company, get in touch with one of our property people, and let us guide you through the process and provide you with enough information so you can make an informed decision
Author: Spire Property Solutions
