Does Your Company Need Capital for Growth or Operations? The quick download on sale leasebacks
More than ever before, investors are looking to invest in industrial real estate. According to Real Capital Analytics (RCA), a commercial real estate investment services website, 2015 was a record year, with dollar volume in sales up and property prices on the rise. This means good things for industrial businesses looking to sell property—and it also means sale leasebacks are becoming an attractive tool for those in the service center industry.
During a sale leaseback, an owner sells its owner-occupied property to an investor in exchange for a lease commitment (usually long term) to free up capital locked in real estate. There are several reasons companies consider sale leasebacks:
Maximize returns prior to or just after a sale of a company: If a company sale is being considered, it is unlikely that the true value of the owned real estate will transfer on a business sale. With today’s aggressive real estate market conditions, an individual or portfolio property sale leaseback should better represent true market real estate value. The same concept applies for a recent acquisition of a company; it allows the purchasing entity to show instant returns or recapture of acquisition costs.
Raise capital for expansion or reinvestment in the core business: A traditional loan will typically provide a lower loan to value. As an alternative, a sale leaseback unlocks 100 percent of the property’s value with no constraining debt covenants. This allows non-working capital to fund location growth, investment in new equipment, acquisition of a competitor or expansion of the company’s current workforce.
Restructure existing company level or location-specific debt: Company debt, location-specific debt terms or ratios might be out of compliance, a sale leaseback can be utilized to improve company level balance sheets or location-specific loans.
Reducing property ownership risks: Transferring ownership reduces the risks associated with owning real estate such as the possible decrease in market value and future functional usefulness of facilities. A short-term sale leaseback can provide much needed flexibility for a company with long-term operational and facility uncertainty.
To download the complete white paper—National Crane Building Market Report, First Quarter 2016—by the Transwestern Metals Team, please click the button above.