Sale / Leaseback is when a business sells its commercial property and then immediately leases it back, becoming a tenant rather than owner of the Property it occupies. The buyer gains a property with an established tenant, and the seller can use the equity in the building to invest back into the business.
Credit risk is significantly lower compared to a new or vacant property, since a financially strong and proven tenant already occupies the building. Reconfiguration expenses are reduced if not eliminated completely, since the tenant is already operating in the building.
Financing: Sale/leasebacks can be a great financing tool, turning equity from real estate into cash and essentially providing 100% financing.
Taxes: Write off the full real estate cost by deducting lease payments. The deduction may be accelerated because it is spread over the lease term rather than the longer depreciation term for commercial buildings.
Downsizing: Instead of relocating, you can downsize in your current location and sell the property as an investment, reducing occupancy costs while eliminating moving, retrofit, and business interruption costs.
It is key to engage a real estate professional with expertise and experience in sale/leaseback analysis and execution to assist with valuation (both for sale price and lease rate), identifying and negotiating terms, and marketing the property for sale across multiple markets. Sale/Leaseback is not right for every situation, but it can be a great way to raise capital and reduce occupancy costs at the same time.