If you’re the owner-occupant of commercial real estate, have you considered the potential benefits of a sale-leaseback?
A sale-leaseback is when you sell your real estate asset and then lease it back long-term from the buyer. This can be an effective strategy to unlock the value of your real estate, allowing you to draw on the proceeds of the sale.
Let’s look at some of the key ways you can use a sale-leaseback to your business’s advantage:
Produce cash for your operations
Selling your asset in a sale-leaseback transaction allows you to regain access to capital that was previously tied up in your ownership of the building while still operating uninterrupted in the same location.
Then you can use the cash generated from the sale for a variety of purposes: to grow your business, pursue new opportunities, address operational issues, among others.
Gain access to an alternative financing tool
As an alternative financing option, a sale-leaseback offers a nice perk compared to conventional financing – it provides the seller more cash. In a sale-leaseback, you would typically receive 100% of the property’s value compared to 70 percent to 80 percent in conventional mortgage financing.
Another perk is the ability to avoid the burdensome provisions associated with traditional financing, including balloon payments, call provisions and refinancing.
Improve your balance sheet & boost your borrowing capacity
A sale-leaseback removes the asset from your balance sheet, converting a fixed asset into cash proceeds from the sale. In removing this liability from your balance sheet, your loan-to-value ratio is reduced, improving your credit standing and making it easier to borrow additional funds in the future.
Transfer ownership risks to the buyer
Upon completion of the sale-leaseback, the responsibilities of ownership are transferred to the buyer, including the risks of depreciation and obsolescence. Eliminating these and other real estate ownership obligations allows you to direct your attention and financial resources to what matters most – your business operations.
As an owner-operator, a sale-leaseback is a viable option for increasing your financial flexibility and liquidity. Since sale-leasebacks are complicated transactions, it’s crucial to rely on an experienced commercial real estate professional to guide you through the process.
Interested in learning more about sale-leasebacks? Contact us at 770-913-3900.