Real Estate Sale-Leaseback Transactions Free Up Cash
In today's tough economy, small and mid-market companies are looking for ways to free up cash for acquisitions, growth, or to replace working capital lost when a bank line is not renewed because of reasons outside the business owner's control.
If you have equity in your commercial real estate, one option is to sell your property to a company that specializes in buying and managing property, then take the equity out in cash and lease back the property on a long-term lease. Compared to a refinance transaction, a sale-leaseback transaction will often yield more cash back to the company occupant.
Large companies have favored leasing their real estate for years. Dell Computer Corporation has many buildings in various locations in the U.S. but doesn't own any of them. Dell partners with a commercial real estate company to design and build them to Dell's specifications and leases the space. In Dell's case, the company doesn't want the asset and any corresponding liabilities on their balance sheet and would rather leave the building asset management to a professional organization.
Although small and mid-market companies might not have the bargaining power of Dell, they can still get cash out of their real estate to use for sales and operations purposes. One company that assists mid-market companies with sale–leaseback transactions is AIC Ventures, with offices in Austin, Dallas, and Chicago.
AIC Ventures Managing partner David H. Steinwedell says their business is strong right now as many middle-market companies are weathering the recession. "People are getting ready for the rebound," Steinwedell says, of companies that know bank lines are either not going to be available or are going to be smaller than needed. Often companies like AIC are part of a refinancing program that involves the sale–leaseback of commercial real estate to free cash and an asset-based line of credit (ABL). The sale–leaseback helps inject permanent working capital into a business while the ABL line of credit provides ongoing working capital using inventory, accounts receivable, and other non-real estate assets.
In general, for a company and property to qualify for a real estate sale-leaseback transaction, a company must be creditworthy enough to lease a building back from the new owner on a triple net lease basis for an extended period of time. The building must also be desirable for the new owner.
Requirements of a typical sale-leaseback transaction:
- Single occupant building (office, manufacturing, distribution)
- Located in one of the U.S. top 200 markets
- Meet appraisal, property condition, and environmental surveys
- Property with an acquisition cost of $4-$50 million value
AIC Ventures is the most prominent company in the real estate sale-leaseback space for middle-market companies across the country. For smaller transactions there are many small companies that handle real estate sale–leaseback transactions, though they are usually focused in small geographical areas where they are located.
Sam Thacker is a partner in Austin Texas based Business Finance Solutions.
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