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About Sale-Leasebacks & Synthetic Leases
What is a Sale-Leaseback Transaction? (Motley Fool, Feb. 23, 2022)
“A sale-and-leaseback, also known as a sale-leaseback or simply a leaseback, is a financial transaction where an owner of an asset sells it and then leases it back from the new owner. In real estate, a leaseback allows the owner-occupant of a property to sell it to an investor-landlord while continuing to occupy the property. The seller then becomes a lessee of the property while the purchaser becomes the lessor.”
A Real Estate Investor’s Guide to Sale-Leasebacks (B+E Insights, Feb. 4, 2022)
“A sale-leaseback is a real estate transaction that is popular with both real estate investors and end users, or those businesses that operate in those properties. A sale-leaseback is a two-part transaction that works just like its name suggests. The property owner enters into an agreement to 1) sell the property to a buyer and 2) lease the property back from the buyer, usually for an extended period of 15-20+ years. Business owners use sale-leasebacks as a financing tool. Effectively, a sale-leaseback allows a business, a sale leaseback allows a business such as Cabela’s to “monetize” capital tied up in their real estate, which they can then use to reinvest in the business, pay down debt, or finance new store growth.”
What if Your Sellers Have Nowhere to Go? (REALTOR® Magazine, Aug. 9, 2021)
“For sellers, it’s more difficult than ever to get the timing right between the sale of their current home and the purchase of their next property. Low inventory, high prices, and quick transactions work against them as buyers, so many sellers may need extra time to figure out their next move. One solution is to ask for a leaseback agreement, which allows the seller to stay put and rent the property from the buyer after the sale. Such an agreement is typically meant for a short period of time—a matter of days or a week. But in this feverish market, some agreements are stretching to a few weeks or even months, which can pose problems if they’re not structured to account for various risks, says Deanne Rymarowicz, associate counsel at the National Association of REALTORS®.”
An Analysis of the New Sale and Leaseback Guidance (CPA Journal, Sep. 2018) E
“The article discusses the launch of Accounting Standards Update (ASU) 2016-02, Leases (Topic 842) by Financial Accounting Standards Board (FASB) in February 2016. Topics include brief overview of lessor and lessee accounting, analysis of the sale and leaseback provisions in ASC Topic 842, and adoption of a dual model of lessee accounting that permits lessees to classify leases either as operating or finance leases.”
Advantages of Sale-Leasebacks
The Sale-Leaseback Liquidity Solution: Weighing the Pros and Cons (Nashville Business Journal, Mar. 11, 2022)
“For companies interested in raising liquidity and that own real estate holdings, one of the more interesting levers to potentially toggle is the sale-leaseback transaction. Especially now, as cap rates remain low despite a slight rise in underlying interest rates. The typical sale-leaseback transaction can be very straightforward to structure and execute, but it does come with advantages, disadvantages, and risks worthy of consideration.”
Why Partial Sale-Leasebacks are the All-Season Solution (Commercial Property Executive, Feb. 17, 2021)
“A sale-leaseback, in its most simplistic form, describes a transaction where the owner-occupant of a property sells the building to a real estate investor and executes a long-term lease at the time of closing, thereby becoming a rent-paying tenant without the hassle of having to physically relocate. A partial sale-leaseback describes the same transaction but instead of the owner-occupant continuing to occupy the entire building, they execute a long-term lease for only a portion of the space. This allows the company to right-size their operations, while allowing the new owner to collect rent on day one and lease the remaining space to additional tenants. The company avoids significant business disruption that would be caused by relocation or by becoming a landlord themselves while maximizing profits from the sale of their building.”
Are Sale-Leasebacks a Solution for COVID-19 Related Uncertainty? (Globe St., Oct. 28, 2020)
“As uncertainty in the economy prevails due to the ongoing COVID-19 pandemic many companies are facing a stark reality: limited working capital and an unfavorable lending environment paired with volatility in the capital markets. As a result, companies are looking for alternative sources of financing to shore up the liquidity they need to continue to grow their business. For companies that own critical operating assets, sale-leasebacks are an efficient long-term capital solution.”
Synthetic Leases: Benefit or Burden? (CCIM Institute)
“Synthetic leases, if properly structured, can be a viable off-balance-sheet financing option for sophisticated real estate users. Their downside is the complexity involved in structuring a transaction that qualifies as a lease for financial reporting purposes, while constituting financing for federal income tax law.”
Real Estate Sale-Leasebacks: What's the Attraction of the Net Lease Arrangement? (CCIM Institute)
“A sale-leaseback with a net lease can work for both buyers and sellers. A net lease provides the lessee (a sale-leaseback's seller) long-term control and property use without a balance sheet impact. A net lease provides a lessor (a sale-leaseback's buyer) a stable income stream—reduced vacancy risk and no operating expense variations—and a potentially appreciating real estate asset.”
Sale-Leaseback Solutions: Examine the Business and Tax Considerations of These Transactions (CCIM Institute)
“While sale-leaseback transactions may be structured in a variety of ways, a basic sale-leaseback can benefit both the seller/lessee and the buyer/lessor. However, all parties must consider the business and tax advantages, disadvantages, and risks involved in this type of arrangement before moving forward.” Use this article to explore the different types of sale-leaseback transactions and the advantages, disadvantages, and tax considerations for the seller.
Hospitality, Government, and Healthcare Property Leasebacks
What’s Behind Food Production’s Interest in Sale-Leasebacks (Globe St., Apr. 20, 2021)
“As food production companies continue to recognize post-pandemic opportunities for growth and enhanced profitability, demand for attractively priced sale-leaseback capital as a long-term source of funding will increase. The liquidity provided by a sale-leaseback can support a range of corporate initiatives, including balance sheet recapitalization, paying down debt and shoring up working capital for future growth.”
How Sale-Leasebacks Can Help Hotels in Need of Liquid Capital (Hotel Management, Nov. 18, 2020)
“Hotel sale-leasebacks may provide the ideal alternative to traditional financing methods—particularly in today’s landscape. Popular in the hospitality industries of Europe and Australia for more than 100 years, hotel sale-leasebacks are gradually gaining attention in the U.S. This arrangement allows the seller of a hotel to become a lessee to the new owner. After title is transferred, the parties sign a lease—typically for 20 to 40 years—in which the seller agrees to make monthly payments to the owner while maintaining a brand flag and management rights. The lease often contains options for renewal or repurchase and can be expanded and extended as needed.”
Sale-Leaseback Deals Continue to be Popular with Retailers (Commerical Property Executive, Jan. 8, 2020)
“Michael Lagazo, an independent retail real estate advisor based in San Diego, Calif., cited other reasons why sale-leaseback transactions continue to be popular with retail companies, including providing the seller with additional tax deductions without taking on debt. Lagazo also noted that big box chains “with high-cost fixed assets and/or substantial real estate holdings typically use sale leasebacks in order to access capital to reinvest into the business while maintaining assets required to operate without worrying about depreciation.””
Medical Real Estate: Sale-Leaseback Advantage (Ploutus Advisors)
This infographic for healthcare providers (owners/users of a medical office) gives a general overview of sale-leasebacks, the benefits of utilizing a sale-leaseback, and the potential uses of capital raised. It then uses a side by side comparison to illustrate the cost comparison, impact of loss of ownership, tax deductions, impact of reinvestment rate, and the positive impact on the company sale.
Articles, Surveys & More From NAR
Find all of NAR's Commercial Real Estate Research here
Find an index to all NAR Research here
Expectations & Market Realities in Real Estate 2021 (National Association of REALTORS®)
Commerical Real Estate Market Trends and Outlook (National Association of REALTORS®)
Commercial Real Estate Lending Trends 2019 (National Association of REALTORS®)
The Commercial Real Estate Outlook is NAR's flagship commercial research publication. It is produced quarterly and includes the latest market information on five major commercial real estate sectors — industrial, office, multi-family, retail and hospitality real estate.
eBooks & Other Resources
The following eBooks and digital audiobooks are available to NAR members:
The Art of Commercial Real Estate Leasing (Audiobook, eBook)
Leasing Administration Simplified (eBook)
Books, Videos, Research Reports & More
As a member benefit, the following resources and more are available for loan through the NAR Library. Items will be mailed directly to you or made available for pickup at the REALTOR® Building in Chicago.
Real Estate Investors Deskbook (Boston, MA: West Group, 2011) HG 4521 Ar6Re
Commercial Lease Law Answer Book (New York, NY: Vendome Group, 2008) KF 593 C6
Managing and Leasing Commercial Properties (New York, NY: Wiley, 2007) HD 1394 AL2ma
Real Estate Sale/Leaseback: A Review of the Advantages and Disadvantages (Washington, D.C.: Society of Office and Industrial REALTORS®, 1993) HD 1384 So1
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