Definitions

sale and leaseback

Sale-and-leaseback

A sale-and-leaseback is typically a commercial real estate transaction in which one party, often a corporation, sells its corporate real estate assets to another party, such as an institutional investor, or a real estate investment trust (reit) , and then leases the property back at a rental rate and lease term that is acceptable to the new investor/landlord.

In a sale-and-leaseback, the lease term and rental rate is based on the new investor/landlord's financing costs, the seller/lessee credit rating, and a market rate of return based on the initial cash investment by the new investor/landlord. The reasons and advantages for doing a sale-and-leaseback by a seller/lessee is varied, but the most common are:

  • Help finance expansion of the existing business, purchase new plant equipment, or invest in new business opportunities.
  • Help pay down debt and improve the company's balance sheet.
  • Help reduce the seller/lessee's business income tax liability caused by the appreciation in value (land only) of its corporate real estate assets. In addition, the seller/lessee as a tenant can deduct all rent payments as a legitimate business expense on its annual tax returns.

The advantages of doing a sale-and-leaseback by an investor/landlord are:

When considering to do a sale-and-leaseback transaction always consult with a qualified commercial real estate broker , attorney, and accountant.

References

  • Investorwords.com
  • National Association of Real Estate Investment Trusts
  • Society of Industrial and Office Realtors

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