Sale Leasebacks – a Timely Alternative
In financial markets such as we are experiencing now, financing real estate for operations or investments can be a challenge. An excellent alternative that remains attractive for corporations and investors is the Sale Leaseback. Essentially, the sale leaseback enables a corporation to make use of the captive equity in its real estate at a cost that is generally lower than its return on equity or long term debt costs. Utilizing long term leases with renewal options, the corporation maintains operational control of its facilities without having to tie up its capital. Further, a sale leaseback provides 100% leverage in comparison to mortgages that generally provide 60% to 70% leverage. From the standpoint of the investor, the sale leaseback offers several advantages:
- A long term lease mitigates vacancy & lease-up risk
- An absolute net lease eliminates operational risks
- The credit worthiness of the tenant may overshadow underlying property value risk
- If expansions take place, the investor is in an excellent position to benefit
In a market where financing is difficult to obtain, the sale leaseback transaction is ideal, particularly when the tenant has a strong balance sheet. Lenders can underwrite their loans utilizing both the underlying real estate and the tenant’s balance sheet, generally resulting in better terms and conditions for the investor. As we slowly work our way out of the current real estate trough, sale leasebacks should contribute a significant part of transaction volume and serve as a bellwether that property markets are starting to trade again.
-Paul Reitz
Paul Reitz, CCIM is Senior Vice President of Investment Services at NAI Global and is a hospitality specialist in NAI Global’s Special Asset Solutions and Investment Services groups.
About the author
Scope of Service Experience Paul's real estate expertise includes brokerage, equity & debt financing, development, and investment of office, industrial, retail and hospitality properties. He has serviced his client's real estate needs throughout the United States, Canada, Latin America and the Caribbean. He has been featured speaker & panelist at major real estate conferences including The Global Property Forum- Toronto Canada 2007 & 2008 ; Eiendomsdagene -Kvitfjell, Norway 2009; Queen's University Executive Seminar on Corporate & Investment Real Estate, Toronto, Canada 2009 and The Nordic Business Arena-Stockholm, Sweden 2009. Education BS & MS degrees The Pennsylvania State University Background & Experience Paul has been in the commercial real estate business for 26 years. His transaction volume includes over $1 Billion of leasing, sales, development, financing & investment of commercial real estate. Paul has been a principle in the DFW broker member of New America Network (predecessor to NAI Global), and a founding partner of its first Mexico City broker member in the 1990's. He has been a past Chairman of NAN Investment & Industrial Councils and has served on the network's national advisory board. Paul's development expertise included the development of a 300,000 sf neighborhood shopping center; an award winning re-development of a 16 story historic office building and the construction of two urban parking lots. As the Chairman/Founder of Sinclair Resorts & Hotels, Inc.-an owner of 5 luxury boutique resorts valued at $100 Million, Paul directed the acquisition, financing, deal structuring and operations of the company. Recent accomplishments include the sale of a 5,000 square meter Class A office tower in Rio de Janeiro; advisory services for the proposed Waldorf Astoria Hotel & Residences in Montreal Canada. Paul is coordinating the activities of the Latin American investment team & actively working globally on behalf of his clients.. Additionally, Paul is directing NAI Global's Hospitality group and is a regional director for the companies Strategic Asset Solutions group targeting advisory and disposition services of bank REO properties & portfolio loan sales. Professional Affiliations & Designations CCIM SIOR (inactive) Licensed Real Estate Broker- The State of Texas Significant Transactions LTV Aerospace & Defense Company- several million sf office & industrial leases & acquisition of 300,000 manufacturing facility; Bridgestone Firestone 300,000 sf industrial lease; Homeowners Warranty 60,000 sf office lease; Holiday Inn Sunspree Resort $56M acquisition; Two Bunch Palms Spa Resort $20M sale; L'Auberge de Sedona $14M acquisition; acquisition, redevelopment & sale of 100k sf Sinclair Office Bld, Fort Worth, Tx.; acquisition, completed development & sale of 300k sf Good Homes Plaza Shopping Center, Orlando, Fla. $13M; acquisition, redevelopment & sale of 117 room West Vail Lodge, Vail, Co. $6M; equity & debt financing of Sinclair Resort & Hotel Companies hospitality portfolio $100M; sale of 5,000 square meter Class A office bld. (Shell Oil) in Rio de Janeiro; sale of 440,000 sf Sherwin Williams Distribution Center, Waco, Tx.; acquisition of 106,000 sf Martin Brower Distribution Center, Lewisville, Tx.; advisor to Monit Inc. in negotiations with Hilton Hotels regarding the proposed development of Waldorf Astoria Hotel & Residences, Montreal Canada; advisory services & master planning of proposed major industrial airport, Mexico City.
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