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1. What is it?
A Sale Leaseback is a term for a transaction that involves a building owner that is also the operating business in the facility. After the sale is completed the operating business continues to occupy the building during a specified lease period. Here's an example:
Holding Company A owns 123 Main Street which is occupied by Operating Company A (which is also owned by Holding Company A). Holding Company A sells the building to Value Add Investor and agrees to lease the space for a 1 year period after the sale closes at an agreed upon rate.
2. Why would an owner user do this?
An owner user would consider this option when they hold significant equity in a property and are at the tail end of the life cycle of their operating business. This allows them to realize the gains from their equity while also giving them a wind down time for shutting down or relocating the business. Another reason could be the owner preparing for retirement.
3. Who would buy this?
There are many types of investors that are interested in Sale Leaseback transactions. A Value Add investor would look to have a shorter term lease back (12 months or less) and would hope to increase the value of the property through a new lease after the leaseback term expires.
Another type of investor may look to a sale leaseback in order to acquire a cash flowing asset with a known occupant. This reduces their vacancy risk until it is time to renew or re-tenant the building.
4. How can I find out more?
Contact us! We have been involved in Sale Leasebacks and understand the delicate transition of going from building owner to tenant as well as critical communication when stepping in as the new owner of a leased back building.